Q&A - What is a sales forecast?

A sales forecast is an attempt by management to estimate the likely revenues of a product, business unit or market over a future period.

Sales forecasting is a difficult area of management. Most managers believe they are good at forecasting. However, forecasts made usually turn out to be wrong (or perhaps it is fairer to say “inaccurate”) Marketers argue about whether sales forecasting is a science or an art. The short answer is that it is a bit of both.

A sales forecast is part of the marketing planning process. Businesses are forced to look well ahead in order to plan their investments, launch new products, decide when to close or withdraw products and so on. The sales forecasting process is a critical one for most businesses. Key decisions that are derived from a sales forecast include:

- Employment levels & organisational skills required (workforce planning)
- Promotional and distribution mix
- Whether existing and future production capacity is sufficient to meet anticipated demand
- Management of stocks

Why is sales forecasting important? Because the consequences of getting a sales forecast wrong can be severe for a business.

For example, a widely inaccurate forecast of likely demand for a new product, or in response to a changed promotional strategy, may leave a firm with excess capacity and stocks.

So the key role for sales forecasting is to help managers make decisions about what resources the business needs in the future.