A sales forecast is a protrusion of reachable sales revenue, based on traditional sales data, analysis of market surveys and tendencies, and salespersons’ estimates. Sales forecasting is a fundamental piece of business management. Without a solid perception of what your future sales might be, you can’t manage your inventory or your money flow or plan intended for growth. The purpose of sales forecasting should be to provide information that you can use to make intelligent business decisions.
Types of Sales Forecasting:
There are two types of forecasting:
- Short-term forecasting and
- Long-term forecasting.
This type of forecasting can be defined when it covers a period of three months, six months or one year. Generally, the last one is most preferred. The period is dependent upon the nature of the business. If the demand fluctuates from one month to another, forecasting may be done only for a short period.
Purpose of Short-Term Forecasting:
- To adopt suitable production policy so that the problem of overproduction and a short supply of raw material, machines etc. can be avoided.
- To reduce the cost of raw materials, machinery etc.
- To have proper control of inventory.
- To set the sales targets.
- To have proper controls.
- To arrange the financial requirements in advance to meet the demand.
The forecasting that covers a period of 5, 10 and even 20 years. The period here also depends upon the nature of the business, but beyond 12 years, the future is assumed as uncertain. But in many industries like ship-building, petroleum refinery, paper making industries, a long-term forecasting is needed as the total investment cost of equipment is quite high.
Purpose of Long-Term Forecasting:
- To plan for the new unit of production or expansion of the existing unit to meet the demand.
- To plan the long-term financial requirements.
- To train the personnel so that man-power requirement can be met in future.