Quantitative sales forecasting 3.3.1

Question 1

What is sales forecasting?

Answer 1

The projection of probable, future sales in units or revenue. Sales forecasts are used to predict the level of future sales. This helps a business make decisions and anticipate performance in the short and long term.

Question 2

What is quantitive sales forecasting?

Answer 2

Use of statistical forecasting techniques such as time series analysis which makes predictions about future sales

Question 3

What’s done with quantitative sales forecasting

Answer 3

Organise production, organise resources in the business like employees, and organise marketing

Question 4

What is time series analysis?

Answer 4

Method that allows a business to predict future sales from past data.

Question 5

How do you calculate a three-period moving average?

Answer 5

• Leave first years smoothed data blank.
• Take the first second and third years’ sales data and add them together.
• Divide by 3 (or what period you’re calculating).

Question 6

Forecasting for an existing business involves these three techniques:

Answer 6

• Moving averages
• Extrapolation
• Correlation

Question 7

Why is a moving average helpful?

Answer 7

It can help identify an underlying trend in a set of data with strong seasonal variations or an erratic pattern.

Question 8

What is extrapolation?

Answer 8

Extrapolation uses trends established from historical data to forecast the future

Question 9

What are the benefits of extrapolation?

Answer 9

• A simple method of forecasting
• Not much data required
• Quick and cheap

Question 10

What are the drawbacks of extrapolation?

Answer 10

• Unreliable if there are significant fluctuations in historical data.
• Assumes past trends will continue into the future.
• Ignores qualitative factors.

Question 11

What does a correlation mean?

Answer 11

Correlation looks at the strength of a relationship between two variables.

Question 12

What are the factors affecting sales forecasts?

Answer 12

• Consumer trends: Demanding in many markets changes as consumer tastes and fashions change. Affects both overall market demand and the market shares of existing competitors.
• Economic variables: Demand is often sensitive to changes in variables such as exchange rates, interest rates, and taxation. The overall strength of the economy is also important.
• Competitor actions: Hard to predict, but have the insignificant reason why sales forecasts proved to be over-optimistic.

Question 13

Sales forecast are likely to be inaccurate when…

Answer 13

• Business is new: A start-up is hard to predict sales with no previous data.
• Market subject to significant disruption from technological change
• Demand is highly subject to changes in price and income (elasticity)
• Product is a fashion item
• Significant changes in market share (e.g. new market entrants)
• Management has demonstrated poor sales forecasting ability in the past
• The further into the future you predict, the less reliable the forecast will be

Question 14

What are the benefits of quantitative sales forecasting?

Answer 14

• Useful for predicting.
• Planning tool.
• Easy to interpret.

Question 15

What are the drawbacks to quantitative sales forecasting?

Answer 15

• May not be reliable.
• Consumer trends change.
• Economic variables change
• Competitor actions change and so hard to predict.

Question 16

Negative correlation:

Answer 16

No budget increase.

Question 17

Strong positive correlation:

Answer 17

Raise the marketing budget.

Question 18

No correlation:

Answer 18

More research is needed

Question 19

Weak positive correlation:

Answer 19

Keep the budget the same as last year

Question 20

No line of best fit:

Answer 20

No correlation