Without sales forecasting, businesses cannot plan production or evaluate the performance of sales representatives and a marketing campaign, because they’ll not have anything with which to compare the sales performance. Sales tend to fluctuate, influenced by various factors. When a business figures out why the sales fluctuate, they can better predict when to increase or decrease production. For example, many manufacturers know they must increase production leading up to Christmas. But businesses might unexpectedly need to scale back production when customers move out of a particular area, for example.
When releasing a new product, businesses can use surveys to guess the likelihood that customers will purchase it. However, customers often have an easier time saying they’ll buy a product than actually committing to buying one. When releasing a new product, manufacturers can test the product on customers. If the product is well received, the manufacturer knows to produce more of the product than if it is poorly received. If possible, businesses can tweak the product in response to feedback before its release.
Some industries have consistent ways in which sales fluctuate. For example, automobile sales are directly related to the overall national income, with consumers buying cars more often when the economy is flourishing. However, demand for advanced information technology products for businesses tend to remain the same during minor downturns, since businesses are always interested in increasing efficiency through technology.
Industries have experts who often publish predictions regarding how much they expect an industry to grow by studying the market. The best experts to listen to are those with a proven track record. Also, psychologists and similar experts can predict how people will behave in a given situation. For example, psychologists might predict that people will buy more food before a major snowstorm. Through judgmental bootstrapping, experts can cause business owners to mildly reduce or increase inventory in response to predictions.
When the economy behaves more consistently, businesses can rely on overall trends to make sales forecasts. If the demand for a product increases by 2 percent every month at a consistent rate, businesses can increase production by 2 percent every month to match demand. Businesses can rapidly determine changes in buying trends by analyzing scanner data, which provides cheap and highly accurate data. Growth will usually not continue indefinitely, since the factor that causes the growth might disappear.
If a business relies heavily on sales calls to sell products, salesmen can provide estimates of how many clients they expect to ultimately sell products to. Salesmen with good experience can sense when a customer is likely to buy. Sales representatives can also informally help you determine where you should market products and services, since some areas may have more leads and some areas might have fewer leads, encouraging you to direct your services in a particular direction.