Sales Forecasting Methods That Let You See the Future Like a Sage
Sales forecasting methods are actually used as self-assessment tools for businesses. These aim to predict levels of sales and demands accurately for specified periods based on past or current records. Forecasting a way of looking objectively at the future through trend analysis and being aware of present economic conditions.
Depending on the volume of sales, companies are able to use various sales forecasting methods at different times using different information sets. In sales forecasting, the math involves is quite simple, actually. The hardest part is maintaining the accurate and detailed records of finance necessary for making these calculations. To calculate forecasts of sales you will generally need information about external factors that impact sales such as raw material price changes, economic forecasts, increased competition and employee contract re-negotiations. You will also need information about the sales number that have been cancelled or returned as well as the sales numbers of every product broking down per month of the year. Here is a course entitled Predict the Future Like a Sage that shows you various methods to analyze data in real time.
Sales forecasting methods gives you information that is quite valuable which can help you manage and plan for any type of industry and any size of business. Doing a forecast makes you able to compare your business performance with others in the industry since there will be available records for evaluating current and past sales. You also get to implement policies that help you get profits under control through monitoring operating costs and prices. Plus, using data from the past, businesses can identify small problems while they are minor and solve it before it looms large. This tends to be very good for sales in the long run. Basically, using sales forecasting methods gives you an edge over other companies. And isn’t that what everybody wants? By the way, you might be interested in this article about selling effectively using sales metrics.
Qualitative Sales Forecasting Method
Techniques of sales forecasting are also qualitative. This involves a questionnaire that is focused on the issue. An expert panel is selected and participants independently answer these. Everyone’s response is summarized and more questions are developed. The cycle begins again until the company concerned with the issue feels that a topic agreement has been reached. As per the expert group’s ideas and responses, the budget for sales and production is planned. A method called Brainstorming is another qualitative method used. This is a technique involving a group used for promoting creative thinking and generating useful, new ideas. This is most effective with groups of people of about a dozen or less and work best when the group is varied. Thus, in a company, a session of brainstorming should include participants from various backgrounds and departments.
Quantitative Sales Forecasting Method
Considering a company’s past sales is one of the best methods for forecasting future sales. Since the environment of business does not suddenly change, last quarter’s figures might just help managers know the kinds of ales they can be expecting in the coming months. This is known as a quantitative approach of forecasting sales. This also includes components you can use like Random Factor Analysis, Cycle Analysis, Trend Analysis and Seasonal Analysis. Usually, components such as these are applied to computations and analysis. Directly asking people what their future buying intentions and other market research data is another quantitative method. Many large research firms in the market gather information such as this continually. They could ask consumers like do you intend to purchase a tablet in the six to twelve months? Firms also sometime conduct research on range of salary and if there are expectations that the consumer has to be worse or better off in the future. The survey results let an enterprise predict patterns of sales across a broad range of durable consumer goods. Need to predict the future? Here is a course that helps you master sales forecasting fundamentals accurately.
For you to determine which method of sales forecasting to use, you will need to find out which best suits your company. The 2 methods for sales forecasting are quantitative and qualitative. The Quantitative method of forecasts uses figures and numbers that the company has done previous calculations on from sales. In contrast, qualitative forecasting does not depend on numbers but instead involves expert surveys in the field, salespeople and customers to predict sales. To determine which to use for your company, first think about the needs of your business. While these 2 sales forecasting types can be used together, quantitative forecasting is used for predicting sales in exiting fields while qualitative forecasts are used for predicting sales in fields not entered by the company as of yet. You can also use quantitative techniques of forecasting that are more complex to understand the various factors that cause sales to be affected. Need help selling? Here is a course entitled The Natural Selling System that shows you how to close the deal and get your products moving off the shelves. Projections in a time series make use of random and seasonal factors, cycles and trends for sales predictions. The method of chain ratio analyses a factor’s quantitative impact that can possible cause sales to be affected. Here are a few of the more popular methods explained:
Time Series Analysis Method
This method predicts sales in the future through the analysis of the historical relationships between time and sales. Even if the actual # of years in an analysis of time series varies from one company to the next, generally, managers really ought to include as many possible years as they can to ensure that important trends in sales do not go undetected. Methods of time series use historical data as the basis for estimating outcomes in the future. There are different types of time series methods:
- Growth Curves are empirical models of the way quantity over time evolves. Curves of growth are used widely used in quantities of biology such as biomass, population size, demography or analyzing population growth. You can plot the measured properties on graphs as well.
- Trend Estimation is a technique in statistics to help in data interpretation. When measurements in a series are treated as a time series, statements can be justified and used for tendencies in the data through relating time measurement when they occur.
- Linear Prediction is a math operation where discrete time signal future values are estimated as previous samples’ linear functions. Linear prediction in digital signal processing is frequently called LPC or linear predictive coding and can be viewed then as a filter theory subset. This can also be viewed as part of optimization or mathematical modelling.
- Extrapolation is the process of being able to estimate something beyond the original range of observation. The variable’s value will be based on the way it relates to another variable. Not unlike interpolation which creates estimates using observations that are known, extrapolation has a higher risk of producing results that don’t mean anything. It is also subject to a larger degree of uncertainty.
- Exponential Smoothing are techniques applied to data in a time series to make forecasts or for producing smoother data. In themselves, the data in the time series are observations in a sequence. Essentially, the observed phenomenon may be a noisy but orderly process or it can be a random process.
- Kalman Filtering, also known as the LQE or the linear quadratic estimation, is an algorithm that uses measurements in a series that have been observed to occur over time, containing inaccuracies such as noise and producing unknown variable estimates. This tends to have more precision than those based on single measurements.
- Weighted Moving Average is a type of average that has factors of multiplying to give different weight to data at varied positions in the window of samples. Basically, a moving average is datum point convolution with a fixed weight function. The removal of pixelization from digital graphical images is one application.
- Moving Average, also known as a running or a rolling average, is a calculation analyzing points of data by the creation of an average series of varied subsets in the full set of data. This is also called the rolling mean or the moving mean. Variations include weighted, cumulative or simple forms.
Sales Force Estimation Method
This sales forecasting method predicts sales in the future by analyzing opinions of a group of sales people. The fact is that sales staff interact with customers on a continuous basis and from interactions that they have, they will eventually be able to develop a skill for predicting sales in the future. Just as the other method called jury or executive opinion normally, the forecast resulting is a blend of the group’s informed views. This method is considered a management tool that is very valuable and is used commonly in global industry and business. By training sales staff to better interpret the way they interact with customers, a company can make their staff better forecasters.
Jury or Executive Opinion Method
In this method of sales forecasting, the appropriate organization managers meet to discuss what they believe will happen to future sales. Since sessions of these discussions usually revolve around experienced guesses or hunches, the forecast that results is a blend of opinions that are informed.
There are a few steps in the Delphi Method. The first step involves asking experts to answer in writing and independently a questionnaire about sales in the future or whatever area the company wants to find out about. Next, with none of the experts knowing what the others answered, a summary of all the answer is prepared. Copies of the summary are then handed out to experts individually with requests that their original answers be modified if needed. When these modifications are handed in, another summary is made and again copies are distributed to the experts. However, this time, opinions of the experts that significantly deviate from the norm will need to be justified on paper. Another summary is made from the latest modified version and again, copies are handed out to the experts. It is now going to be required to justify all answers in writing by each expert. From all the justifications and opinions, a forecast is then generated.
For more fundamentals of sales forecasting, here is a course you might want to check out called Forecasting Fundamentals which will help improve the forecast accuracy of your company.
Last Updated March 2023
A practical guide on how to do basic sales forecasting models in Excel with case studies & real-life examples | By Asen GyczewExplore Course
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