Sales Forecasting

Top 5 methods for quantitative sales forecasting

Introduction:

While working in a business, it is undoubtedly very important for you to access all the sectors of your company and work effectively to earn a handsome amount of revenue at the end of the year or month. It could be only done when you are fully indulged in the activities of your business related to the inventory. While we all know that forecasting about inventory is done at the time of production to estimate how much goods must be produced. But let us now talk about the methods of forecasting. This article will help you cover all the details about some of the tried, tested, and effective methods of forecasting the sales of your business. 

In addition to this, using inventory management software like Inventooly could help you even manage as well as calculate inventory digitally with zero chances of error or mistake. All the work is conducted digitally with this software therefore you can be relaxed that your time is saved and now you can also focus on other activities of the business.

Sales forecasting:

Business is entirely done while keeping in mind the sales perspective. YES! It is undoubtedly the primary goal of every business to gather as many sales as possible. But it is surely not a piece of cake right? One needs to do something in order to reach somewhere. Likewise, firstly knowing that you will be able to sell enough goods in the future is very important, this is termed as Sales forecasting. 

In simple words, you need to make sure that the products you are manufacturing or buying in order to offer to the customers will be sold in the future or not? Sales forecasting methods come in handy to evaluate this situation. All the past data is brought out and compared with the current situation of the business, and the forecast is made. However, it is very crucial that your forecast is not faulty or missing any point relevant to the sales. Because if it proves wrong in the future, a major overstocking inventory situation could occur in your business. Therefore, using inventory management software like Inventooly could help you make important decisions about the inventory of your business which in turn helps you to make sales forecasts more effectively.

Quantitative Sales Forecasting Methods:

There are two basic types of sales forecasting methods; Qualitative forecasting and Quantitative forecasting methods. Out of these, the latter one is known to be used most frequently among businesses in order to make perfect and error-free forecasts about the sales of your business.

However, quantitative forecasting is further divided into many parts, out of which 5 major ones are elaborated below:

  • Time series analysis

There is no doubt that the most frequently used forecasting method for sales is the time-series method. It helps you to make quality estimations about the sales of your business in the future by taking a portion of past data because it can repeat in the future. Differences would be made by the external factors affecting the sales forecast of your business. In addition to this, the time-series method helps in forecasting revenue where the growth and profit are steady and not too many ups and downs are monitored from the past. Generally, it includes the data from the past to make forecasts regarding the sales of your business affected by external factors.

  • Moving Average Method

Moving on to the next method to calculate inventory and forecast sales for the future would be the moving average method. It is also easy to use as it utilizes the data for specific and short time periods. In addition to this, the moving average method is used where long-term estimates and forecasts are not needed. We can understand simply that, with this sales forecasting moving average method, you can forecast the future sales of your business on a weekly, monthly, or quarterly basis. Because your growth rate is not constant it keeps on changing over a specific time period. 

In addition to this, it can be done more simply by using inventory management software like Inventooly because it will bring out the true picture of your inventory which will help in effective sales forecasting for the future.

  • Linear Regression Method

Third, the most frequently used quantitative method of sales forecasting of your business is the linear-regression forecasting method. It is also very simple to use as it works with two variables and shows their relationship to forecast the sales of your business. This type of sale forecasting method helps the businesses that calculate their inventory and evaluate the forecasts on spreadsheet software like Excel. Because it displays the relationship between two points simultaneously. 

For example, if you would let one variable be sales and the other one profit, you can observe if both the points are increasing there will be a positive relationship between them. And if the sales are increasing but the profit is not, then there will be an opposite or negative correlation between them. 

  • Test Marketing Method

Another quantitative sales forecasting method includes the Test marketing method. It enables you to understand whether your product will gather a large number of eyes in a specific time period or not. 

In other words, when you are about to launch a product, you will send its samples in the specific areas for selling and see whether it is grabbing the attention of the buyers or not. If it is doing so, you will know that now you can launch it without any fear. This method helps you to even calculate the inventory of your business and how much you should produce right now. In addition to this, it also helps to determine the actual sales forecasts in the future of your business.

  • Historical Growth rate method

Also known as the straight-line method, it is the most simplest and frequently used method for the sales forecasting of your business. It is said to be easy because there are no assumptions needed or no external factors affect your current forecast. You will only observe the past years and verify what was the growth rate of your business back then. Likewise, the same growth rate will be used for the future revenue forecasts also, you will not have to make assumptions yourself. Just enter the number of years for which you have to make a forecast and enter the constant growth rate from the past and you are done.

Also see: Four Loan Tips Every Small Business Owner Should Know

All above-stated are the topmost methods used for the sales forecasting of your business. However, you can utilize inventory management software like Inventooly in order to calculate the inventory of your business and manage it according to the grounds of your business. This software will be helpful for you because it will fasten your work and the risk of errors and omissions is eliminated while working on an automated platform.