221 Sales Forecasting AS Edexcel New Specification 2015 Business By Mrs Hilton for From the specification a) Purpose of sales forecasts b) Factors affecting sales forecasts: consumer trends economic variables actions of competitors c) Difficulties of sales forecasting a) Purpose of sales forecasts b) Factors affecting sales forecasts: consumer trends economic variables actions of competitors c) Difficulties of sales forecasting Guidance from Edexcel Lesson Objectives To be able to discuss the purpose of sales forecasts To be able to identify the factors that affect sales forecasts; consumer trends, economic variables and actions of competitors To be able to discuss the difficulties of sales forecasting To be able to answer sample exam questions based on the topic area Starter Did you have any of these products? PURPOSE OF SALES FORECASTS Purpose of sales forecasts A business can use a sales forecast to see if they will need to increase their productive capacity (produce more, buy more factory space) They may need to employ more workers based on a forecast They may see that they need to start a promotional activity if sales are forecast to drop You need a sales forecast because your sales provide the income for the business. Without sales, you have no business. However a forecast will also enable you to set sales targets, budget effectively and prepare a cash flow forecast. Without an accurate forecast of sales you will not be able to determine how much you can afford to spend. Natwest bank Link to Natwest site on sales forecasting herehere FACTORS AFFECTING SALES FORECASTS Consumer trends A sales forecast may take into account consumer trends Documents like Mintel can help a business to identify an upcoming trend Fashion shows and trade fairs are also ways that a business can research what might be new popular products Beard care products cashing in on a new trend see the website herehere Even trends in wedding cake styles! See website herehere Economic variables Economic variables such as; interest rates, inflation, unemployment rate and GDP can all affect how a business plans its sales forecasts For example some sales contracts may not be renewed due to inflation and the rising cost of the products from the business, so it may need to lower prices to maintain the correct level of sales predicted If the economy is in a slump or recession customers start to buy inferior goods hence the rise of Poundland and Aldi Watch a video here and read a BBC article on the current rate of inflationhere Actions of competitors The actions of competitors may affect sales forecasting For example the scramble between sky and BT to screen football matches: One of the biggest off-pitch football battles of the decade gets under way next month when BT takes on Sky with the launch of its BT Sport channels, showing 38 exclusive Premier League games for the coming season. But is this a fight for pay-TV dominance or a scrap over broadband customers? Read more herehere DIFFICULTIES OF SALES FORECASTING Difficulties of sales forecasting Historical data may not reflect future performance Seasonality may affect sales Natural disasters that cannot be foreseen Fluctuations in demand due to; sales promotion, fashion, political events, shortages, war, terrorism, etc A new business will have no historical data to look at and will have to use market research data Tunisian tourism demand affected by beach shootings, could not have been predicted in a sales forecast Sample question 1 Answer question 1 Sample question 2 8 mark question Case study on next slide Evaluation required means weigh up pros and cons and discuss if Ocado will have difficulties in sales forecasting the next few years Sample question 3 2 marks No context required 1 mark for answer and 1 mark for development Revision Video Glossary Sales forecasts; a projection of achievable sale revenue based on data analysis trends, economic variables and competitor actions Consumer trends; habits or behaviours which consumers have towards the products they buy and the services they use Economic variables; These are key indicators in the economy e.g. inflation