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)