UNIT 3
Unit-3: Sales Forecasting
Introduction, Simple Linear Regression &
Multiple Regression model to forecast sales,
Forecasting in Presence of Special Events,
Modeling trend and seasonality; Ratio to
moving average forecasting method, Using S
curves to Forecast Sales of a New Product
Sales forecasting
• Sales forecasting is the process of estimating a company’s
sales revenue for a specific time period – commonly a month,
quarter, or year. A sales forecast is prediction of how much a
company will sell in the future.
• Producing an accurate sales forecast is vital to business
success. Hiring, payroll, compensation, inventory
management, and marketing all depend on it. Public
companies can quickly lose credibility if they miss a forecast.
Why is sales forecasting important for
business?
• Strategic decision making
• Resource allocation
• Proactive problem solving
• Budgeting and goal setting
What is regression analysis?
• In simple terms, sales regression analysis is used to
understand how certain factors in your sales process
affect sales performance and predict how sales would
change over time if you continued the same strategy or
pivoted to different methods.
• Independent and dependent variables are still at play
here, but the dependent variable is always the same:
sales performance. Whether it’s total revenue or number
of deals closed, your dependent variable will always be
sales performance. The independent variable is the
factor you are examining that will change sales
performance, like the number of salespeople you have or
how much money is spent on advertising.
Modeling Trend
Trend forecasting is a complicated but useful way to look at
past sales or market growth, determine possible trends from
that da and use the information to extrapolate what could
happen in t future. Marketing experts typically use trend
forecasting to he determine potential future sales growth.
Many areas of a business can use forecasting, and examining
the concept as it relates to sal can help you gain an
understanding of this strategy.
Seasonality
• Seasonality is a characteristic of a time series in which
the data experiences regular and predictable changes
that occur every calendar year. Any predictable
fluctuation or pattern that recurs or repeats over a one
year period is said to be seasonal.
• Seasonality in forecasting requires business owners
and supply chain managers to identify which goods
have seasonal patterns and which do not. And for the
goods that do fluctuate in popularity, the challenge is
in determining when they will see the highest and
lowest demand.
There are three types of time-based
seasonal patterns.
• Weekly seasonality - This usually applies to general product consumption
on particular days of the week. For example, a gallup poll found that
Americans on average spent the most money on Saturdays and least on
Mondays. This is likely the result of weekdays leaving little time for
shopping and entertainment as a result of work or school.
• Monthly seasonality - This covers cyclical demand for goods and services
over the course of a month. For example, you may find that your
customers spend more when their paychecks arrive either at the
beginning or the end of the month.
• Yearly seasonality - This seasonality sees a predictable and recurring
demand for goods and services on an annual basis. As mentioned earlier,
online retail sales surge during the fourth quarter of the year due to the
holiday season. Likewise, the back to school' period also sees a consistent
spike in demand for books and school supplies each year.
Ratio to moving average forecasting
method
The ratio-to-moving-average (RMA) forecasting
method is a simple and widely used technique for
predicting future values of a time series. It involves
dividing the actual value of a variable by its moving
average over a specified period of time, and using
this ratio as a forecast for the next period.
‘S ’curves
‘S ’curves
• S curve is one of the most important concept when it
comes to the Product Life Cycle (PLC) or the Product
Evolutionary Cycle (PEC). It is a widely used concept in
marketing. It is called the S curve because it looks like
the letter S.
• S curve is applicable to any business or startup where
things move very slowly at first, then it gains
momentum and continues to grow and finally a stage
where productivity or sales declines and the market
becomes saturated. S Curve equation enables one to
know how large the sales will become and whether the
sales have touched the inflection point.
The S curve can be divided into 3
parts:
• In the initial stage, the sales generated are less due to
many factors like low demand, high competition in the
market, poor promotion, and high costs associated
with marketing.
• Then the sales start to increase with an increasing rate
up to a point( known as inflection point). This is due to
greater public awareness and reduced costs due to
economies of scale.
• After the point of inflection, the growth rate of sales
slows down. It means that only existing customers
continue to buy and the product has reached its
saturation point.
