The Meaning of Sales Forecasting
Sales forecasting helps companies predict future sales levels and is crucial for strategic decision-making. It requires information on market size, consumer demand, and competitive analysis. Accurate forecasts impact hiring, inventory, and credibility. It differs from sales targets and relies on data for projecting future revenues.
The Strategies for Forecasting Related to Sales
Sales forecasting methods include the breakdown approach and the market build-up technique. The breakdown approach estimates sales potential based on economic and market factors, while the market build-up strategy predicts sales at product, customer, or geographic levels. They are given below:
1. Using the past data: Through executive judgment, leaders of a company predict sales for the future based on past trends.
2. Choose suitable forecasting methods and tools: Many methods are available to forecast sales. They are given below.
Customer, salesforce, and expert surveys help predict sales. Customer surveys gather consumer opinions, salesforce surveys provide insights on market share and territories, and expert surveys gather opinions from industry experts.
This uses historical data and discovers a pattern in the sales, which can be used to predict future sales. In simple terms, it analyzes the relationship between past sales and future sales based on the data.
It is a mathematical method to analyze the relationship between two dependent and independent variables. It determines how certain factors affect the sales and what could be the impact of these factors being changed. Let us understand this with the help of an example:
Suppose Starbucks wants to forecast that sales will increase if the sugar quantity increases in their coffee.
The regression equation is \(Y~=~bX~+~a\).
Here,
X is the independent variable (number of sales calls)
Y is the dependent variable (number of deals closed)
b is the slope of the line
a is the point of interception, or what Y equals when X is zero
Through a tool such as Microsoft Excel or Google sheets, we can run a code and forecast the sales.
3. Develop a structured plan: Developing a structured plan helps a business accurately forecast its sales. This plan includes various steps about which factors contributed to a higher sales revenue in the past. It even includes information about which variables need to be analyzed to forecast sales precisely.
4. Conduct test-market analysis: Market tests are used for one-time surveys to design and launch a new product.