Sales Forecasts

A sales forecast is a projection of the amount of products or services a business expects to sell within a specified future period.
They are typically based on historical sales data, market research, economic trends, and anticipated market changes.
The information gathered from a sales forecast is important as it assists in planning budgets, controlling cash flow, making informed business decisions, and setting sales targets.
The main steps in creating a sales forecast include selecting a time period, identifying key sales drivers, projecting these sales drivers, and then estimating the resulting sales.
Accuracy in sales forecasts is critical as overestimating can lead to overspending and cash flow problems, while underestimating can result in missed opportunities and insufficient inventory.
Forecast accuracy can be assessed using measures such as Mean Absolute Percentage Error (MAPE) or tracking signal.
Sales forecasts can be divided into three types: short-term forecasts (less than 3 months), medium-term forecasts (3 months to 2 years), and long-term forecasts (more than 2 years).
Qualitative methods of sales forecasting include Delphi method, market research, and executive opinion while quantitative ones include time series analysis, moving averages, and regression analysis.
Factors affecting sales forecasts could include internal factors (like changes in marketing strategies, introduction of new products), and external ones (like changes in consumer trends, economic conditions, or competitor actions).
It’s important to regularly review and revise sales forecasts as the business environment evolves.
Sales forecasting plays an important role in financial planning as it directly influences both the income statement and balance sheet.
The process of sales forecasting can be made more accurate and efficient with the use of forecasting software but it still requires human judgement and experience.