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)


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