A business can optimise the production capacity and material purchase to ensure optimum business sales with accurate sales forecasts. Conventionally, forecasting models can be divided into three patterns.
Qualitative sales forecasting method uses experts' experience, expertise, and instinct to predict numerical sales forecasts. The method also takes into account customer opinions about their new product needs and also check with distributors about sales of products. Most of these techniques are better for forecasts of sales cycles of upto three months.
Qualitative forecasting methods are quick and generally don't need elaborate statistics. They also improve sales forecast by taking into account factors like state of economy, shortages and new product launches. These methods are also useful when there is not enough data and can give a more broad-based view.
On the other hand, these methods need a lot of time and resources and the Forecast Accuracy
may not be as high as compared to some quantitative forecasting methods. Sometimes sales reps can be overly optimistic or pessimistic about predictive sales.
The quantitative sales forecasting process relies only on historical data to predict the trajectory of sales. The method puts to use data on sales so that business can see past and future trends. The process then derives to forecast future sales. The quantitative methods are used to forecast sales for up to a year.
The forecast method is objective and unbiased as it uses historical data to decide on future sales operations. The method also puts forth past trends of spending, sales, and scheduling and their consistency. This allows a business to make changes to supply chain, workforce or inventory management in an average sales cycle.
But the method, while producing clear forecast sales data, does not allow businesses to account for external factors which can impact sales. The cost is also high compared to qualitative demand forecasting methods. But this can be easily addressed by using affordable business sales forecasting software.
As per a report in Harvard Business Review, a causal model is the forecasting process that takes into account everything known of the dynamics of the flow system and utilizes predictions of related events such as competitive actions, strikes, and promotions'.
The data required is not limited to a company's internal sales data but also needs external data like surveys, product features, social chatter, etc. Usually, causal models are continuously revised to make sure the latest information is incorporated. The model is used for planning sales forecasts for a period of quarter , year.