The 30 Day MBA in Marketing by Colin Barrow

Author:Colin Barrow
Language: eng
Format: epub
Publisher: Kogan Page

Forecasting

Sales drive much of a business’s activities; they determine cash flow, stock levels, production capacity and ultimately how profitable or otherwise a business will be, so unsurprisingly much effort goes into attempting to predict future sales. A sales forecast is not the same as a sales objective. An objective is what you want to achieve and will shape a strategy to do so. A forecast is the most likely future outcome given what has happened in the past and the momentum that provides for the business.

Any forecast is made up of three components and to get an accurate forecast you need to decompose the historical data to better understand the impact of each on the end result.

Underlying trend. This is the general direction, up, flat or down, over the longer term, showing the rate of change.

Cyclical factors. These are the short-term influences that regularly superimpose themselves on the trend. For example, in the summer months you would expect sales of certain products, swimwear, ice cream and suntan lotion to be higher than in the winter. Ski equipment would probably follow a reverse pattern.

Random movements. These are irregular, random spikes up or down, caused by unusual and unexplained factors.

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