Sales forecasting and break-even analysis

Sales Forecasting

A sales forecast is a projected measure of a company’s revenue from sales over a specific time period.
It is based on historical sales data, current market conditions, and assumed sales environment factors.
The forecast is usually carried out using methods such as expert judgement based on experience, statistical techniques (like moving averages, regression analysis, etc.), or a mix of both.
It forms a critical part of the business plan and is essential for budgeting, planning for business growth, and managing resources.
Accurate sales forecasting helps in efficient inventory management, reducing holding and shortage costs.
It assists in establishing performance goals for sales teams and individuals.

Break-Even Analysis

Break-even analysis is a financial tool used to determine the minimum volume of sales a company needs to cover its costs.
The break-even point is the point at which total revenue equals total costs. Beyond this point, a business starts to make a profit; below this point, it runs at a loss.
A break-even analysis is often used when pricing products or services and when planning for potential cost and sales volume variations.
A break-even chart is a graphical representation of the break-even analysis. It visually outlines the point at which total revenue equals total cost.
The break-even point can be calculated using the formula: Break-even point = Fixed costs ÷ (Selling price per unit - Variable cost per unit).
Understanding the break-even point helps businesses decide whether a product or service will be financially viable in the long run.
A low break-even point is desirable as it means that less sales are needed to cover costs.
Informed decisions about pricing, setting sales targets and choosing between different business options can be made using break-even analysis.