Sales Forecasting is something which every company should be doing and becomes a very powerful management tool that can have multitude uses. Regardless of the size of your business and your future intentions with the business you need a sales forecast. For a time you might be content with letting your business tick along, as it always has done, and have no plans to develop or grow the business. This might work in the short term for the long term survival of the business look to your sales forecast. As a well thought out and presented sales forecast provides many benefits to your business.
Sales Forecasting Benefits: Your sales forecast will provide you with a sense of direction. Your sales forecast is an intention, or a plan of what you want the business to achieve, which will give you and the management something to aim for and a target to reach. Some businesses simply run along as they always have done with no real sense of purpose but with a sales plan and sale forecast in place this will not happen.
Sales Forecasting Benefits: Your sales forecast will help to motivate you. When you have something to aim for, should help to stimulate yourself into action into delivering on the Sales Forecast and Sales Strategy. Your Sales forecast and Sales plan should serve as a motivator, but remember the sales forecast should be realistic and achievable otherwise it will have the opposite effect and de-motivate you when not achieved.
Sales Forecasting Benefits: Your sales forecast will be a measure of your success. Your sales forecast will give you that benchmark to measure your success by. Each month it should be part of the management strategy to compare how you achieved against your sales forecast. This is even better when you complete a rolling 24 month sales forecast.
While this might sound great but how do you complete your sales forecast? The best way to create an accurate sales forecast is to use the best sales forecasting technology available. What we suggest to all clients that are looking to have fast, easy and accurate sales forecasts is to try Quantrix. Click here to experience to try sales forecasting software your business.
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Sales Forecasting software uses statistical forecasting methods to generate forecasting. We at MXI Software explain relevance of exponential smoothing for sales forecasting, budgeting and business modelling.
Exponential smoothing methods weight the historical data using exponentially decreasing weighting. The immeidiate prior period has the most weight and each period prior to it has relatively less weight. The decline in weight is expressed mathematically as an exponential function. The smoothing parameters determine the weights. To see the relevance of this in action we developed the mxi free forecasting offer. MXI 60 minute free forecast session:
Comparison Among Exponential Smoothing Methods
Single Exponential Smoothing: Identifies the percentage of weight given to the prior period and all other historical periods. It does not adjust for trend or for seasonal variance.
Double Exponential Smoothing: Finds trend then adjusts the forecast data to reflect this trend instead of generating a single parameter for all forecast periods.
Holt-Winters: Identifies both trend and seasonal variance, and adjusts the forecast data to reflect these factors. This method is tuned to both high and low outliers. A better choice for handling seasonality is Double Exponential Smoothing with the Data Filters parameter set to Seasonal Adjustment.
Advanced Parameters for Exponential Smoothing
These smoothing constants are used in the equations for exponential smoothing methods. Keep the default settings unless you have a strong background in time-series forecasting.
Alpha: Determines how responsive a forecast is to sudden jumps and drops. It is the percentage weight given to the prior period, and the remainder is distributed to the other historical periods. Alpha is used in all exponential smoothing methods.
The lower the value of alpha, the less responsive the forecast is to sudden change. A value of 0.5 is very responsive. A value of 1.0 gives 100% of the weight to the prior period, and gives the same results as a prior period calculation. A value of 0.0 eliminates the prior period from the analysis.
Beta: Determines how sensitive a forecast is to the trend. The smaller the value of beta, the less weight is given to the trend. The value of beta is usually small, because trend is a long-term effect. Beta is not used in Single Exponential Smoothing.
Gamma: Determines how sensitive a forecast is to seasonal factors. The smaller the value of gamma, the less weight is given to seasonal factors. Gamma is used only by the Holt-Winters method.
Trend Dampening: Determines how sensitive the forecast is to large trends in recent time periods. Dampening identifies how quickly the trend reverts to the mean. A higher value implies slower dampening while a lower value implies faster dampening. The smaller the value, the less effect the trend has on the forecast.
For each constant, you can specify a maximum value, a minimum value, and an interval. The interval is an incremental value between the maximum and minimum, which the forecasting engine uses to find the optimal value of the constant.
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It isn't easy but it can be done. Demand Management, Supply Forecasters, Sales and Operations planning collectively can achieve this. Sales Team define the sales plans, timings and volumes of the demand from customers. We explain how Sales, Marketing and Management need to combine to drive accuracy improvement.
Once a month they need to communicate anticipated purchased customers will make including volume, timing and the degree of certainty over the agreed planning horizon. Free forecast :: Send us your data and we will send you a forecast
Explain the assumptions on which plans are based. Detail the market intelligence and customer feedback outlining problems and opportunities similarly. Sales Team need to immediately advise of issues which will impact changes in demand as soon as they become known. Not a classic trait of any sales team.
Sales and Operation Planning and Demand Management is also heavily influenced by the sales forecasts provided by Marketing. Marketing need to detail plans for impacting demand. Monthly updates on the efforts of the marketing team to drive and control demand management. Promotions, Price cuts or increase, Retailer or customer incentives need to advised and communicated to Sales.
Marekting needs to update tracking, measuring and reporting competitor activity, external factors which impact sales levels on a monthly basis. In the face of the field report from Sales, Marketing needs to tweak the sales and marketing strategy.
Product and Brand Managers - Need to outline supports available, product launches, new product development, and list product to be discontinued and not be shy about sharing these details. Furnish Sales and Marketing with budgets, define the product strategies, making clear to the Demand Managers, Supply Chain Managers, Forecasters company plans and objectives.
Management need to convey the Assumptions behind product life cycles. Brand Owners, Product Managers needs to detail delays in product launches changes in product plans which impact demand.
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Demand Planners, Sales and Operations planners, Sales Forecasters are always interested in how the Forecast Pro uses data sourced from all over the organisation. Demand Managers are constantly trying to improve the accuracy of forecasts using budgeting and forecasting software. They want to reduce the use of spreadsheets and in particular focus on the most inaccurate forecasts. Many item forecasts with low volumes and patchy turnover can be as low as 20% accurate.
If you are running a large Retail, Distribution or Manufacturing company you might have data produced from your Trend purchasing screen supplied as part of their ERP Software suite. This data is also produced by a Manufacturing MRP output report after Materials requirement planning is completed. You can automoate link file so this data is pushed into Forecast Pro where the Forecast Pro expert selector operates.
Forecast Pro examines the data (each line or item) and then selects the most appropriate statistical forecasting methodology for each individual item on the list using such forecasting methods such as Holt Winters, Exponential smoothing. It's important to appreciate this point as spreadsheets simply use the same very low tech forecast approach for everything.
What should happen next is that the Forecast Pro user will having satisfied themselves that the forecast is satisfactory will push the data towards the Purchasing & Logistics department.
We have customers who improved accuracy on fast moving parts with good sales histories by as much a 8 % almost immediately and as much as 30% in the short term on hard to forecast slow moving parts.
And remember whatever you do don't just leave Forecast Pro run in the corner unattended, friendless and all alone. It's an everyday product which can continuously improve forecasting accuracy into the future. Become a friend of Forecast Pro by trying Forecast Pro for yourself at no charge. Click here for more details: Forecast Pro
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Sales budgeting, modelling & forecasting is the kernel good planning and budgeting processes and is usually the most sensible place to start the enterprise planning and budgeting process. The level of Sales activity makes it easier to project Stock, Inventory turns, purchasing, personnel requirements and the organization structure required to run the business. An accurate Sales forecast which as stated above means it's a lot easier to see the cost drivers in the business model and the best place to start your financial modelling.
Most organizations refer to budgets, financial modelling or forecasting as the upcoming 12 months and projections are the following years. The complete planning cycle with the overall financial model is usually 5 years. Within the budget period there is further detailing of the rolling three, six, twelve and eighteen months forecast. In the US & UK it is usually referred to as the rolling forecast because at the end of each month the actual figures are imported into the budget for comparative purposes. And once the imported actual figures are imported, variances reported and hopefully analysed for discrepancies. The budget, financial model, forecast is rolled forward one month.
In preparing any Sales budget or Sales forecasting across a large corporate or Multi National, the process of developing a sales budget or forecast is getting more detailed and complex. Modern ledgers systems report a lot of detail. And this has created a need to project sales forecasts at the line item level in every market, territory where the company operates. The ongoing financial crisis means the task is more complicated than previously as customers can not be relied on to behave so predictably making the forecasting and budgeting process more difficult.
At MXI we have a range of software products to assist in this process enabling people and companies to forecast and budget better using Forecast Pro for time series forecasting which replicates seasonality, trends, weather, events etc. This greatly improves the accuracy of the sales forecast and delivers much better Sales management KPI's to larger organizations. The best way to experience Forecast Pro for yourself is to try it out on your data: Find out more at Forecast Pro
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