Presentation

Sales Forecasting

● Sales forecasting is an attempt by companies to predict what level of sales they may

expect in future years. (It is not always right since it’s a prediction)

● Market forecasts are part of the market planning process before new products are

launched on the market.

● These forecasts will be based on market research data (primary and secondary) sources.

Product sales forecasts are commonly based on past sales data.

Sales forecast importance

● Predicted growth:

○ Staff recruitment: Make sure that you have enough staff to cover for this growth.

○ Increase in production capacity: Increase capacity as well.

○ Price increase: Since there will be an increase of demand, you can opt to adjust

your price instead of getting more staff and capacity.

● Expected drop:

○ Rationalize production: Reduce production rates so you prevent overstock.

○ Make staff redundant: You won’t need the staff that you currently have to

produce less.

○ Relocate land & capital: Adjust to the changes the market is having by selling,

changing or buying land & capital.

○ Adjust budget
Time series

● Time series data are statistics that are

recorded over time. The independent

variable is time, and the dependent is

whatever is being recorded.

● A trend is a pattern that is happening often

over time.

Steps on calculating the trens (patterns) moving average method

STEP 1

Calculating the moving average

STEP 2

Extrapolating the trend

STEP 3

Finding Variations
Calculating the moving average (four-part moving average)

● Sum quarterly from 3 to 4

Moving averages

● 3-part moving averages

○ Used for odd moving parts

● 8-part moving averages (4 part corrected)

○ Used for even moving parts

3-part moving average

4-part moving average without centering (not useful)

8-part moving average with centering

Extrapolating the trend

● A line of best fit is a graphical tool that draws a straight line through points plotted on a

graph that expresses a relationship between two variables. The straight line will give an

indication of the nature of the relationship between the two variables.

X =Σ X (total of periods)/ N (number of periods)

Y =Σ Y (total sales∈the trend)/ N (number of periods)

Variations from the trend

● Seasonal variations – Products that experience higher sales volumes at certain times of

the year are said to be seasonal. Toys at Christmas, sunscreen in summer. (days, weeks...)

● Cyclical variations – Cyclical variations are affected by the economic cycle.

● Random variations – These may occur at any time, and for any reason: A natural disaster,

a major sporting event or political unrest can all affect sales of various products, in

unpredictable ways.
Definitions

● Extrapolation: To predict future sales, the extrapolation technique identifies the trend

through the use of past data and extends the trend into the future.

● Moving Averages: the method of smoothing a time series to reduce the effects of random

variation and reveal any underlying trend or seasonality by using averages.

Calculating variations

Calculating average seasonal variation

Strengths and limitations of sales forecasting