SALES FORECASTING

Question 1

What is sales forecasting?

Answer 1

It is the process of predicting the future sales of a firm. It is a complex process that is influenced by several external factors.

Question 2

Predicting sales helps:

Answer 2

• Reduce uncertainity
• Make intelligent decisions
• Ensures better planning for growth
• Helps with the management of stock and cashflow

Question 3

What is time series analysis?

Answer 3

It is a quantitative method that predicts a firm’s future sales levels from past sales data.
The business relies on time series data, which is data that the business has kept for a given period of time.

Question 4

What is the trend?

Answer 4

It is the visible pattern seen after inputting the past sale data. It is the overall direction of the data overtime.

Question 5

What are seasonal fluctuations?

Answer 5

Changes in demand due to seasonal variation in the year. It is a repeating pattern of data over a set period of time.

Question 6

What are cyclical fluctuations?

Answer 6

Variations tied to the business cycle in the economy. They are repeating but non-seasonal patterns, they can extend for more than one year.

Question 7

What are Random Fluctuations?

Answer 7

Notable fluctuations that stand out from a given trend. They are unpredictable and can occur at any time.

They cannot be explained by other components.

Question 8

What is extrapolation?

Answer 8

Same as a line of best fit. Once the trendline has been drawn, it can be extended to provide an estimated sales value for future years.

Question 9

What is variation?

Answer 9

It is the difference between actual sales and the trend values.

Question 10

What is variation used for?

Answer 10

• Calculated to see when sales fluctuate the most from the trend
• Helps predict future sales more accurately
• Adjust marketing planning accordingly

Question 11

Benefits of Sale forecasting

Answer 11

• When sale forecasting aligns with an organization’s strategy, it enables the right resources to be allocated at the right time.
• Better cashflow management. Financial managers can better plan to improve the liquidity position of the business.
• Increased efficiency: Know the number of goods to produce and to plan for stock required in the future.
• Better workforce plan: Know the number of staff required in the future.
• Imporved marketing planning: Greater awareness of future trends and be able to adjust the marketing strategies accordingly to increase market share.

Question 12

Limitations of Sale Forecasting

Answer 12

• Time consuming
• Ignores qualitative external factors. They can influence the accuracy of sales forecast predictions. (Political, Social and Changes in Tastes)
• The entry of competitiors into the market may be unforseen. It can significantly change an organization’s dynamic and influence its sales position.