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. It is a crucial part of the financial planning of a business.
Limitations of Sales Forecast:
In certain cases forecast may become inaccurate. The failure may be due to the following factors:
Changes are throughout. Present style may change at any time. It is difficult to say as to when a new fashion will be adopted by the consumers and how long it will be accepted by the buyers. If our product is similar to the fashion and is popular, we are able to have the best result; and if our products are not in accordance with the fashion, then sales will be affected.
2. Lack of Sales History:
A sales history or past records are essential for a sound forecast plan. If the past data are not available, then the forecast is made on guess-work, without a base. Mainly a new product has no sales history and forecast made on guess may be a failure.
3. Psychological Factors:
Consumers’ attitude may change at any time. The forecaster may not be able to predict exactly the behavior of consumers. Certain market environments are quick in action. Even rumors can affect market variables. For instance, when we use a particular brand of soap, it may generate itching feeling on a few people and if the news spread among the public, sales will be seriously affected.
4. Other Reasons:
It is possible that the growth may not remain uniform. It may decline or be stationary. The economic condition of a country may not be favorable to the business activities-policies of the government, an imposition of controls etc. It may affect the sales.
The methods of forecasting discussed above have respective merits and demerits. No single method may be suitable. Therefore, a combination method is suitable and may give a good result. The forecaster must be cautious while drawing decisions on sales forecast. Periodical review and revision of sales forecast may be done, in the light of performance. A method which is quick, less costly and more accurate may be adopted.