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
- VariableCosts- These costs change with supply, for example raw materials, fuel Calculating – Total variable costs = variable cost per unit X no. of units produced
- TotalCosts- 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)