Tools & Techniques of Sales Forecasting

Sales History

• Sales history is an important tool in forecasting. It's the basis for inventory, staffing and business resource planning. Knowing previous years' sales allows the establishment of a baseline, or starting point, for setting goals. Sales history, analyzed with knowledge of the market, customers, industry and prod ucts, is the main indicator of future sales opportunities.

Open-Model Time-Series Techniques

• Open-model time-series techniques involve analyzing sales history data for patterns to use in sales forecasting. These are patterns in level, trends and seasonality, combined with "noise." Level is the sales history without trends. Trends are increases or decreases in sales that continue year after year. Seasonality is a pattern of sales of particular items at particular times of the year, such as chocolate eggs at Easter or space heaters in early winter. Noise involves random effects in sales that don't have a repeatable pattern in previous sales. Analyzing sales history trends and reasons for changes in sales enables sales personnel to produce more accurate forecasts.

Exponential Smoothing

• Exponential smoothing is a sales forecasting technique that compares a previous forecast to actual results to get an error figure to use in current and future forecasts. For example $50,000 in widget sales forecast for last January and $41,000 in widgets actually sold that month produces an exponential smoothing factor, or error, of negative $9,000. This figure is used to get a more accurate forecast.

Trend

• A trend is the upward or downward movement of the numbers in the baseline over time. Trends indicate some action is necessary, such as ensuring enough inventory is ordered and enough shipping staff is on hand for high sales months, or additional sales and marketing efforts are needed for lower sales months. Trends are important forecasting tools for planning and preparation.

Excel

• Excel is an accounting spreadsheet program that enables users to organize sales history data for forecasting. Customer lists, sales personnel lists, products, and sales history by year and month are organized in Excel in to display sales figures, analyze trends and project future sales to prepare inventory, staffing and delivery methods. Excel has many features important to sales forecasting, such as pivot tables, averaging tools and graphing