The concept of Sales Forecast
Financial forecasting is a significant part of the financial planning process. The financial forecasting begins with the sales forecast. The sales forecast is a forecast of firm’s future sales both in terms of volume and value. Accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. Companies can base their forecasts on past sales data, industry-wide comparisons, and economic trends.
It allows companies to:
- Predict achievable sales revenue;
- Efficiently allocate resources;
- Plan for future growth.
The sales forecast always begins with analyzing the historical trends in sales over the past periods. It also takes to consider the future economic prosperity if given line of business. Further, it makes the arrangement in advance for raw materials, equipment’s, labor etc. Some firms manufacture on the order basis, but in general, the firm produces the material in advance to meet the future demand. To determine the forecasted sales growth, the firm must rely on competitive market conditions, customers’ tastes and preferences, change in technology and future possibilities of market expansion. This forecast helps the management in determining as to how much revenue can be expected to be realized, how much to manufacture, and what shall be the requirement of men, machine, and money. Nowadays, several statistical methods like regression analysis, time series analysis, econometric models are used to consider all these factors in providing sales forecasts.