There are many techniques for forecasting, and all follow a familiar pattern. Good managers use a combination of qualitative and quantitative techniques. To learn more about the qualitative and quantitative techniques that be helpful in your work, watch this video.
- Once you understand your category and the dynamics of your marketplace, it's time to get serious about generating a sales forecast. Let me warn you right up front. There are a lot of techniques and software packages out there, so you have to be diligent about researching the one that's right for you. Forecasting techniques fall into two broad categories. Qualitative techniques which rely on input from people, and quantitative techniques which rely on input from numerical data, but, honestly, the best forecasters rely on a combination of both.
Especially when the stakes are high. So here are some questions you can ask yourself when selecting a forecasting technique. How well do you understand your market? Is it growing or shrinking and why? Are there new consumer, competitive or technology trends? Is it a seasonal business? Now if you don't know a lot about your market and the important changes that are going on, you may want to lean on qualitative techniques that leverage the advice of experts.
For example, how well do your salespeople and distributors understand the market? Are you in a business where they know their customers very well, and they just have a pulse on what's going on? Here again, lean towards qualitative techniques to take advantage of that expertise. Ask yourself, how much data do you have about past sales? Quantitative forecasts often use historical data such as previous sales and revenue figures, production and financial reports and website traffic statistics.
Looking at seasonal sales data, for example, can help a company plan next year's production and labor needs based on last year's monthly or quarterly figures. Quantitative forecasting also uses projections based on statistical modeling, trend analysis or other information from expert sources such as government agencies, trade associations and even academic institutions. Finally, what methods did your predecessor use? How successful was he or she? Were there some big misses in forecasting that no one wants to talk about? Well you need to go find out.
Good forecasting includes a mix of quantitative and qualitative methods. After all, it's all about managing the consequences of being wrong, so minimize risk by selecting the best technique for your situation.
- Understanding the sales forecasting process
- Defining your market category
- Understanding market dynamics
- Selecting a forecasting technique
- Using quantitative forecasting
- Understand moving averages
- Using qualitative forecasting
- Using estimates from customers, sales reps, and distributors
- Using a panel of experts