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The accurate prediction of future sales is important for a company to adequately plan strategy, control inventory, assess employment levels and predict customer service needs. Predicting sales can be accomplished through sales forecasting, a tool that should always be tailored to your individual business. But using standard techniques can help you increase accuracy.
Prior Period
One of the easiest sales forecasting techniques is to look at prior period results. For example, you can look at the prior month's sales and forecast the next month's sales to be at a similar level. Adjustments can be made based on known variables such as a new sales promotion, a change in products or a change in employment levels. You could also review the same month in the previous year to use for forecasting.
Moving Average
Another simple sales forecasting technique is moving average, where the sales results of multiple prior periods are averaged to predict a future period. For example, the prior three months sales could be averaged to determine the future demand for the next month. You can also use a weighted average to focus more on sales from the most recent months.
Decomposition
Decomposition uses historical factors like seasonal differences, business cycles and other trends to help forecast future sales. This method is more complex and typically requires access to significant data for accurate results.
Regression
Regression modeling forecasts sales based on independent variables. For example, future sales expectations could be based on the amount of calls made by employees. Regression modeling would calculate the future predicted sales based on different sales call levels.
Additional Statistical Methods
Other statistical sales forecasting methods include least squares trend, erratic demand, Box-Jenkins, probability trees and the Delphi method.
Executive Judgment
Executives can make sales predictions based on the cumulative information they have at their disposal. Executive judgment can be based on both company-derived information and external forces like economic differences and industry changes.
Qualitative Manager Forecasts
Sales forecasting can be done based on the judgments of others in the business. For example, business unit managers can be queried for predicted sales for their division and those compiled with the predictions of other managers. These results are based on their working knowledge of multiple variables and may not be statistically reliable. However, managers may understand dynamic business forces that cannot be obtained from prior data.
Tags: future sales, sales forecasting, employment levels, look prior, month sales