In practice, businesses are likely to use a combination of sales forecasting methods.
The choice depends on several factors, such as:
- Accuracy of the sales forecast. How accurate the forecasts need to be will determine the workload and time needed to conduct sales forecasting. The greater the degree of certainty needed, the more methods will be chosen as the analysis need to be more thorough. Perhaps, both qualitative methods of sales forecasting and quantitative methods of sales forecasting will need to be used. Hence, this will involve more time, so incurs higher costs. The lesser the degree of certainty required, the fewer methods will be needed.
- Time frame. How far ahead sales forecasts need to be? It is quite easy to forecast sales in the very short-term such as for the next day, next week or even next month. Therefore, the shorter the time into the future, the easier it is to carry out sales forecasting using quantitative time-series analysis. On another hand, predicting sales levels into a faraway future is much more problematic. Honestly, none of the methods can guaranteed that sales figure will be correct.
- Availability of data and information. Widespread and easy access to a wealth of business data and information at low cost will sales forecasting quicker and more accurate. However, if access to sales numbers is difficult and expensive, this will limit the choice of forecasting methods. Being able to use monthly and quarterly data to forecast sales in addition to annual figures will reveal much more about sales fluctuation and pattern changes.
- Budget available. The cost of collecting, analyzing and presenting data and information can be extensive depending on which method of sales forecasting is being used. The more detailed the analysis is with many methods used, the higher the overall cost of sales forecasting is going to be. This especially applies to qualitative methods of sales forecasting where multiple rounds of detailed interviews with experts are required. The larger the marketing budget the firm has, the more methods it can use.
- The stage in The Product Life Cycle. Most of the new products fail to get established on the market, therefore not much data and information is available in the early stages of The Product Life Cycle. This is why most marketing manager tend to overpredict sales figures for new products. At the initial stages of the product life sales forecasting more of the art rather than science. More insight and market research results will be available during late growth and maturity stages making it easier to forecast sales. Sales forecasting is actually a prediction based on the past sales data and trends.
It is not always easy to choose the most appropriate sales forecasting methods the first time around. In addition, more than one method might be necessary.
