4.3.

Sales Forecasting (HL Only)

 Sales forecasting
 Quantitative techniques to estimate future sales using a range of forecasting
techniques
 Forecasting allows for smoother cash-flow management, inventory & production,
financing
 Benefits
 Provides valuable information for a business about the trend of sales and
what to expect in terms of revenue
 Lets a business use quantitative data (past sales) and qualitative data
(impending changes) to assess the future of the company’s sales and success
 Limitations
 No one can predict the future
 Using different methods, businesses will end up with different scenarios
and different trends
 May confuse the business on what strategy to use

 Methods of forecasting
 Four part moving average sales trends
 In order to remove the variations produced by seasons, trade cycles and
other variations, and moving average is used to make data smoother
 Given a set of actual sales, you take the average of four points of data (eg.
4 values of revenue/month) and average them, moving left-right
 Corresponds with how sales are usually reported which is quarterly
 More difficult than 3 part moving average (only 3 points are used)
 Time series analysis
 Predicts future sales by identifying underlying trend line
 Seasonal fluctuations
 Seasonal variations in demand
 e.g. pre-Christmas season is capitalized in the USA through
the Black Friday and Cyber Monday sales
 Random fluctuations
 Unpredictable fluctuations in sales
 Cyclical fluctuations
 Variations linked to economic cycle of booms and slumps
 Response
 Deliberate actions taken to affect sales (e.g. Sales
promotion)
 Extrapolation
 Plotting historical data and extending the trent to project future sales
 Simple but not very accurate
 Delphi technique
 Using a panel of independent experts
 Experts go through a sequence of questionnaires, each of which builds on
previous ones, lasting throughout several rounds
  A facilitator provides an anonymous summary of the experts’ forecasts
from the previous round as well as the reasons for their judgments
 Market research
 Identify trends and external changes that can impact sales and combine
with statistical data