1 Quantitative Sales Forecasting3.3 Decision-making techniques

2 What you need to know a) Calculation of time-series analysis: moving averages (three period/four quarter) b) Interpretation of scatter graphs and line of best fit – extrapolation of past data to future c) Limitations of quantitative sales forecasting techniques

3 Topic Links Sales Forecasting

4 Why Forecast Sales? A _________________activityThe sales forecast forms the basis for most other common parts of business planning: Human resource plan: how many people we need linked with expected output Production / capacity plans Cash flow forecasts Profit forecasts and budgets A very useful part of regular ________________________and helps to focus market research

5 Two Common Methods to Explore

6 Extrapolation

7 Moving Averages Are Often Used for Extrapolation

8 Moving Average illustrated

9 Exercise: Extrapolate What Will Happen to Global Smartphone Sales by 2020?

10 Extrapolating Global Smartphone SalesNot just a question of drawing a straight line assuming continued growth Factors to consider:

11 Benefits / Drawbacks of Using ExtrapolationAdvantages Disadvantages A simple method of forecasting Not much data required Quick and cheap I

12 Correlation

13 Correlation VariablesIndependent Variable Dependent Variable

14 Plotting Correlation - ExampleCustomer Enquiries (number per week) Advertising per week (£’000)

15 Explaining the Scatter Chart (1)

16 Explaining the Scatter Chart (2).

17 Types of Correlation Positive correlation Negative correlationNo correlation

18 Holidays taken from the UK to FloridaPound / $ Dollar Exchange Rate

19 Negative Correlation Demand for new houses Interest rate on mortgages

20 Demand for sausage rolls and other savoury pastriesNumber of weddings per year in the UK

21 Strong or Weak Correlation?The line of best fit indicates the strength of the correlation Strong correlation means that there is little room between the data points and the line Weak correlation means that the data points are spread quite wide and far away from the line of best fit If the data suggests strong correlation, then the relationship might be used to make marketing predictions

22 Key Factors Affecting Sales Forecasts

23 Circumstances Where Sales Forecasts Are Likely to be Inaccurate

24 Final Thoughts on Sales Forecasting