Edexcel AS Business

2.2.1 Sales forecasting

 Theme 2 Retrieval Challenge Matrix
1 point 2 points 3 points
Give an example of an What 2 kinds of business Explain the role of a
‘economic variable’ structure would enjoy business plan in obtaining
limited liability? finance
Define the term ‘business Describe the term ‘trade Choose appropriate
angel’ credit’ and how it works sources of fiancé for an
independent hair salon
Define the term ‘retained Compare leasing a van Explain the drawbacks of
profit’ and loaning the money to cash-flow forecasts
buy a van
You will need worksheet 2.2.1 for this lesson
From Edexcel
a) Purpose of sales forecasts
b) Factors affecting sales forecasts:
• consumer trends
• economic variables
• actions of competitors
c) Difficulties of sales forecasting
Starter
• Did you ever have any of these products?
Definition: Sales forecast
• A sales forecast estimates the volume or value of future sales using
market research or past sales data.
Purpose of sales forecasts
Purpose of sales forecasts introduction
• There are lots of uses of sales forecasts and these are the main ones
that the Edexcel exam board would like you to be able to apply to
businesses:
1. To avoid cash flow problems
2. To free up management time
3. To manage production capacity
4. To employ more workers
5. To start a promotional activity
#1 Purpose – avoid cash flow problems
• Accurately forecasting the sales
and building a sales plan can
help the business to manage
their production, staff and
financing needs more effectively
and possibly avoid unforeseen
cash flow problems
• A sales forecast will help a
business to write the income
part of the cash flow forecast
#2 Purpose – frees up management time
• While it's always wise to expect
the unexpected, a well-
constructed sales forecast can
allow the business owners to
spend more time developing
their business rather than
responding to day-to-day
developments in sales and
marketing
• Managers will have more time to
focus on the rest of the business
#3 Purpose – production capacity
• The business can use a sales forecast
to estimate if they need to increase or
decrease production – and this will
also help them to see if they have
enough production capacity to deal
with expected demand
• The business may need to buy or rent
new premises if there is a huge
increase in sales forecast
• Watch the video – can you explain
how sales forecasts might be used by
Amazon?
#4 Purpose – employ more workers
• If the business has high sales
forecasts for a new product or
service it may need to take on new
employees to cope with new levels
of demand
• Failure to meet required staffing
levels could result in poor reviews
– customer service and this may
have an impact on future sales
• Can you explain how this will relate
to Lush?
#5 Purpose – start promotional activity
• If sales are forecast to be very low
and the product or service is not in
the decline phase of the product
lifecycle, then the business may
decide to try and increase sales
though promotion and marketing
• Sales forecasts can also direct a
business to a specific season or
month when promotion activity
would be likely to net the most
sales revenue e.g. Christmas
Factors affecting sales forecasts
Consumer trends
• A sales forecast may take into
account consumer trends
• Documents like reports that Mintel
produce can help a business to
identify an upcoming trend
• Fashion shows and trade fairs are
also ways that a business can
research what might be new
popular products
• Read the article – what consumer
trend has ASDA responded to?
Research: Consumer trends
• Carry out some internet research
and produce a list of the top 10
consumer trends right now e.g.
vegan products
• Compare these with other
students in your group
• Can you build a comprehensive
list from the class
• How will these consumer trends
impact business?
Economic variables
• Economic variables such as; interest rates,
inflation, unemployment rate and GDP
can all affect how a business plans its
sales forecasts
• For example some sales contracts may not
be renewed due to inflation and the rising
cost of the products from the business, so
it may need to lower prices to maintain
the correct level of sales predicted
• The UK economy is now in the recovery
phase*, so low cost retailers like
Poundland may need to forecast lower
sales
Actions of competitors
• The actions of competitors may also
have an impact on sales forecasting
• If the business has products that
face declining sales, perhaps
because of a competitor's superior
product, they may decide to
produce or sell less of those
products
• Can you explain this in terms of
Crocs vs Birkenstock or Nike vs
Adidas?
Difficulties of sales forecasting
Difficulties – no guarantees
• Just because a sales forecast has
been written by a business - there
are no guarantees that sales will
meet these levels
• This could be down to any number
of uncertain factors e.g. impact of
terrorism on tourism in some
countries
• Carry out some research, which
countries currently are suffering
tourism losses due to terrorism?
Difficulties – dynamic markets
• In April of 2017 the fidget
spinner was the must-have toy,
by May 2017 most schools had
banned them and sales were in
decline
• The craze or fad for fidget
spinners has died - meanwhile
toy shops are packed to the
rafters with the toy they can no
longer sell
Difficulties – short term thinking
• A sales forecast is useful for a
business which can produce and
sell products or services in a one
year period
• For some businesses e.g. ship
building company or a hotel, a
one year forecast will not be
useful or appropriate for multi-
billion dollar contracts, over a
longer time period
Plenary Quiz
• Identify if these are purposes or difficulties of sales forecasting

1. Short-term thinking
2. Managing capacity
3. Dynamic markets
4. Avoiding cash-flow problems
5. No guarantees
6. Free up management time
Sample question 1

Knowledge 2
Answer question 1
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Sample question 2 extract
Sample question 2

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Peer / self marking grid for 8 mark question
Mark
1-2 marks Limited knowledge and some recall of business theory, answer may not be in context
What went well: You used business terms correctly
Even better if: You had discussed the business situation in the case study
3-5 marks Comments are in context, and chains of reason are present but very basic. Unbalanced
argument, only discusses one side.
What went well: You were able to give chains of reason in context in your answer
Even better if: You had given both sides of the argument
6-8 marks Chains of reason are complete and argument shows both sides. Answer is in context and
uses numerical data to support where appropriate.
What went well: You gave a balanced argument in your answer
Even better if: You had used more numerical data to support your arguments
Revision Video
Glossary
• Sales forecasts; a projection of achievable sale revenue based on data
analysis trends, economic variables and competitor actions
• Consumer trends; habits or behaviours which consumers have
towards the products they buy and the services they use
• Economic variables; These are key indicators in the economy e.g.
inflation