Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. It forms a basis of sales budget, production budget natural budget etc.
The purpose of sales forecasting should be to provide information that you can use to make intelligent business decisions.
There are three classes of sales forecasts:
- Short-run Forecast:
It is also known as operating forecast, covering a maximum of one year or it may be half-yearly, quarterly, monthly and even weekly. This type of forecasting can be advantageously utilized for estimating stock requirements, providing working capital, establishing sales quotas, fast-moving factors. It facilitates the management to improve and coordinate the policies and practice of Marketing-production, inventory, purchasing, financing etc. A short-run forecast is preferred to all types and brings more benefits than other types.
- Medium-run Forecast:
This type of forecast may cover from more than one year to two or four years. This helps the management to estimate probable profit and control over budgets, expenditure, production etc. A factors-price trend, tax policies, institutional credit etc., are specially considered for a good forecast.
- Long-run Forecast:
This type of forecast may cover one year to five years, depending on the nature of the firm. Seasonal changes are not considered. The forecaster takes into account the population changes, competition changes, economic depression or boom, inventions etc. This type is good for adding new products and dropping old ones.