Quantitative Sales Forecasting 3.3 Decision-making techniques

What you need to know a) Calculation of time-series analysis: moving averages (three period/four quarter) b) Interpretation of scatter graphs and line of best fit – extrapolation of past data to future c) Limitations of quantitative sales forecasting techniques

Topic Links Sales Forecasting

Why Forecast Sales? A _________________activity The sales forecast forms the basis for most other common parts of business planning: Human resource plan: how many people we need linked with expected output Production / capacity plans Cash flow forecasts Profit forecasts and budgets A very useful part of regular ________________________and helps to focus market research

Two Common Methods to Explore

Extrapolation

Moving Averages Are Often Used for Extrapolation

Moving Average illustrated

Exercise: Extrapolate What Will Happen to Global Smartphone Sales by 2020?

Extrapolating Global Smartphone Sales Not just a question of drawing a straight line assuming continued growth Factors to consider:

Benefits / Drawbacks of Using Extrapolation Advantages Disadvantages A simple method of forecasting Not much data required Quick and cheap I

Correlation

Correlation Variables Independent Variable Dependent Variable

Plotting Correlation - Example Customer Enquiries (number per week) Advertising per week (£’000)

Explaining the Scatter Chart (1)

Explaining the Scatter Chart (2) .

Types of Correlation Positive correlation Negative correlation No correlation

Holidays taken from the UK to Florida Pound / $ Dollar Exchange Rate

Negative Correlation Demand for new houses Interest rate on mortgages

Demand for sausage rolls and other savoury pastries Number of weddings per year in the UK

Strong or Weak Correlation? The line of best fit indicates the strength of the correlation Strong correlation means that there is little room between the data points and the line Weak correlation means that the data points are spread quite wide and far away from the line of best fit If the data suggests strong correlation, then the relationship might be used to make marketing predictions

Key Factors Affecting Sales Forecasts

Circumstances Where Sales Forecasts Are Likely to be Inaccurate

Final Thoughts on Sales Forecasting