Financial planning – Sales forecasting

Financial planning – Sales forecasting

Purpose of sales forecasting:

  • -Right number of staff with correct skills
  • -Marketing budgets
  • -Profit forecasts and budgets
  • -Production planning

Factors affecting sales forecasts:

  • -Consumer trends (they can be short lived, making it difficult to forecast, they can be affected by changing tastes, demographics and globalisation)
  • -Economic Variables (for example change in real incomes, exchange rates, taxation rise)
  • -Actions of Competitors (the downturn of a key competitor may boost demand significantly)

Issues with Sales Forecasting:

  • -It is based off estimates

Sales, revenue and costs

Sales revenue is given by (Sales volume x Price). Sales revenue can be hard to calculate if a business has various products and offers promotional prices.

Two ways to measure how much a business has sold are:

Sales volume ​and ​sales revenue

The cost of Production:

  • ​Fixed Costs​- costs which do not change with supply, includes rent
  • ​Variable​​Costs​- These costs change with supply, for example raw materials, fuel Calculating – ​Total variable costs = variable cost per unit X no. of units produced
  • ​Total​​Costs​- When the fixed and variable costs are added together

Break-even point​​= ​ (Fixed Costs) / (Selling Price – variable costs per unit)

Contribution = (Selling price – Variable costs)

Break-even Charts​:

  • It is a graphical representation of total costs against revenue. The point at which the lines intersect is the break-even point

-The margin of safety is the amount which demand can fall before the company begins making a loss

Impacts of changes in Price, output and cost​:

  • Price rise (revenue line will be steeper; the break-even point will fall)
  • Rise/fall in demand (Has no impact on break-even point)
  • Rise in variable costs (The total costs will rise; break-even point will rise)
  • Fall in fixed costs (Total costs will fall; break-even point will fall)