BBA V Sales and Marketing unit 3 topic 2
Factors Considered for Sales Forecasting:
Following factors should be considered while making the sales forecast:
1. Competition:
To assess demand, it is the main factor to know about the existing and new competitors and their future programme, quality of their product, sales of their product. Opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered.
2. Changes in Technology:
With the advancement of technology, new products are coming in the market and the taste and the likings of the consumer’s changes with the advancement and change of technology.
3. Government Action:
When the government produces or purchases then depending upon the government policy and rules, the sales of the products are also affected.
4. Factors Related to the Concern Itself:
These factors are related to the change in the capacity of the plant, change in price due to the change in expenditure, change in product mix etc.
Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time. Further, it makes the arrangement in advance for raw materials, equipment’s, labour etc. Many firms manufacture on the order basis, but in general, every firm produces the material in advance to meet the future demand.
Types of Sales Forecasting:
There are two types of forecasting:
1. Short-term forecasting and
2. Long-term forecasting.
1. Short-Term Forecasting:
This type of forecasting can be defined when it covers a period of three months, six months or one year. Generally, the last one is most preferred. The period is dependent upon the nature of business. If the demand fluctuates from one month to another, forecasting may be done only for a short period.
Purpose of Short-Term Forecasting:
1. To adopt suitable production policy so that the problem of overproduction and short supply of raw material, machines etc. can be avoided.
2. To reduce the cost of raw materials, machinery etc.
3. To have proper control of inventory.
4. To set the sales targets.
5. To have proper controls.
6. To arrange the financial requirements in advance to meet the demand.
2. Long-Term Forecasting:
The forecasting that covers a period of 5, 10 and even 20 years. The period here also depends upon the nature of business, but beyond 12 years, the future is assumed as uncertain. But in many industries like ship-building, petroleum refinery, paper making industries, a long term forecasting is needed as the total investment cost of equipment is quite high.
Purpose of Long-Term Forecasting:
1. To plan for the new unit of production or expansion of existing unit to meet the demand.
2. To plan the long-term financial requirements.
3. To train the personnel so that man-power requirement can be met in future.