Retail math : talking the talk of retail business!

There is dispute among segments of the retail industry as to the retail math terminology and calculations used in the business. There is definitely a need for a "common language" for the industry as it pertains to calculations and terms! But, the following list of 15 different retail math formulas and explanations is the most common. It is the "language" used by The Hallman Company in working with our clients in formulating and guiding them in implementing their retail business plans: Here are the "top 15" retail math formulas: (1) $ Cost = $ Retail x (100% - Markup %)

Example: $100 retail item with 56% markup has a cost of $44 (100% - 56% = 44%) $100 retail X .44 = $44. Note: This retail math formula is useful for calculating the most you can pay for an item you need to retail at $100, but want a markup of 56%. Use this retail math formula in cost negotiations with vendors. (2) Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - End Inventory Here is another way of stating the same formula: inventory at beginning of year + purchases or additions during the year = goods available for sale inventory at end of year = cost of goods sold Example: Inventory @ cost Beginning of year = $1,000,000. Purchases @ cost + freight During year = $550,000. Total available ($1,000,000. + $550,000.) = $1,550,000. Inventory On Hand end of year @ cost = $900,000. Cost of Goods Sold ($1,550,000 - $900,000) = $600,000. (3) $ Retail = $ Cost / (100% - markup %)

Note: This retail math formula is used to determine the retail price to mark an item, when the cost and the desired markup % is known. Example: Cost on an item is $44. Desired markup is 56%. 100% - 56% = 44% cost complement to the retail markup. Cost $ of $44 is divided by cost complement of .44 to arrive at target retail price of $100. ($44 divided by .44 = $100) (4) $ Markdown = Original retail price - lower retail price

Example: Original retail price $100. New lower price $80. The markdown is $20. This 20% discount becomes an markdown expense of 25% because the $20 must be divided by the $80 sale to be expressed as a % to sales, the way other expenses are expressed as a % to sales. (5) GMROI (Gross Margin Return on Investment) = Gross Margin $ divided by average inventory at cost. Example: Annual Gross Margin $ of $400,000 with an average inventory cost of $150,000 would have a GMROI of $2.67; in other words, for each dollar invested in inventory on average, the $1 invested returned $2.67. ($400,000 divided by $150,000.) This is a particularly important retail math formula. Most retailers do not pay enough attention to GMROI).

(6) Gross Margin = Sales - cost of good sold (Maintained Margin, supposed referred to as Gross Margin, is the initial margin or markup less the cost of markdowns at cost.) (7) Margin % = ($ Retail - $ Cost) / $ Retail Example: $100 retail - $44 Cost = difference of $56. The $56 divided by $100 = 56% (8) Markdown % = $ Markdown / $ Net Sales Example: $20 markdown divided by $80 net sale = 25% retail markdown expense. (9) Markup = The difference between the cost of an item and its selling price. This is the initial markup, or initial margin, before the impact of markdowns. A merchant's job is to turn the inventory often, while preventing the depreciation of the initial markup. The NUMBER 1 cause of excessive markdowns is OVER_BUYING! Proper inventory planning, provided for you by The Hallman Company, will prevent over-buying. (10) Percent change in sales = this period of sales - Last period of sales / Last period of sales Example: This period sales = $1,000,000. Last period sales = $900,000. $1,000,000 - $900,000 = $100,000 increase. Increase of $100,000 divided by last period sales of $900,000 = 11.1% increase.

(11)Planned Stock = planned monthly sales x stock sales ratio. Example: Planned monthly sales of $100,000 X planned stock to sales ratio of 4.0 = a planned first of (planned) month inventory of $400,000. Averaging a 4 to 1 stock to sales ratio each month (4 months supply on hand) will result in achieving retail inventory turns of 3 per year. (12)Stock Sales Ratio = B.O.M. $ Stock / Sales for period. Note: B.O.M = beginning of month inventory. This is one retail math formula which can vary - many companies look at cost inventory- not retail, when computing turns. We recommend retail inventory management. Example: As in example above, a B.O.M. stock of $400,000 retail divided by that month's sales of $100,000 = a stock to sales ratio of 4.0 to 1. ($400,000 divided by $100,000). (13) Shrinkage = Difference between book and physical inventory. This is an "unknown" loss. A markdown is a loss, but if it is recorded, it is a known loss, not shrinkage. If an item is broken or otherwise damaged in stock and disposed of, and no markdown is recorded, it becomes an "unknown" loss, and is reflected as a mysterious "shrinkage" in the inventory. Theft, of course, is unknown or unrecorded loss, or shrinkage. (14) "inventory turnover." Turnover is the number of times you sell your average investment in inventory each year. Turnover = net sales for period / average retail inventory for period. The "period" should be for at least 12 months. Here is another way of stating the same formula: Inventory turns: The retail sales for a period divided by the average inventory value at retail for that period. Most retailers are in the range of two to four turns a year. Properly prepared Inventory Plans will significantly increase your turns and decrease your average $ tied up in inventory, while increasing your profits and boosting your cash flow. At The Hallman Company, we urge our clients to express inventory turnover at retail, not cost. It is relatively easy to speed up inventory turns at cost- just mark everything down to cost, sell it at cost, and you can "sell through" many more times during the period. But we must not only increase turnover, we must at the same time protect the markup. For more information on having your Inventory Plans with Open to buy custom-prepared for your retail business, submit the contact us form from this site. (15) Breakeven = Fixed Costs $ / (Net Sales - Contribution Margin %) Note: The Contribution Margin % (CM) is the sum of the Variable Expense % + Cost of Goods Sold % after the impact of markdowns. Breakeven Analysis: Simply stated, this formula indicates how much sales volume must be accomplished

in order to cover all costs (fixed and variable), and begin generating a profit. In other words, it is the point in sales volume at which you have no profit and no loss.

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Forecasting methods and formulas with Excel

By Guillaume Saint-Jacques, 2008-06-18 (last revised, 2010-02-22)

This guide explains elementary forecasting methods that can be readily applied into Microsoft Excel spreadsheets. This guide applies to managers and executive who need to anticipate customer demand. The theory is illustrated with Microsoft Excel. Advanced notes are available for software developer who would like to reproduce the theory into a custom application.
Table of Contents [Hide/Show]

Forecasting methods and formulas with Excel Benefits of forecasting How to make things easy: labels, comments, filenames Getting Started: a simple forecasting example using trendlines Forecasting using the Analysis Tool Pack Going further: the example of exponential fitting Installing the Analysis Tool Pack (ATP) Using the Analysis Tool Pack (ATP) ... in a linear setting ... using exponential fitting How do I know what model to choose? Get advanced sales forecasts with Salescast What people say

Benefits of forecasting
Forecasting can help you make the right decisions, and earn/save money. Here are a few examples.

Define better sale strategies If a product is declining, maybe it is a good idea to consider stop producing it. But maybe not: maybe it is just your sales that are declining, but not your competitor's? In this case, is there a chance that you can get your market share back?

Forecasting techniques provide answers to these questions vital questions to your business.

Size your inventories optimally Time is money. Room is money. So what you want to do is use all means at your disposal in order to reduce your stocks without experiencing any shortages, of course. How? By forecasting!

How to make things easy: labels, comments, filenames

Over time, as you data accumulate, you will be more and more likely to get confused; to make mistakes. The solution? Don't be messy: making good use of labels, comments and naming your files correctly can save you a lot of trouble.

Always label your columns. Use the first row of each column to describe the data it contains. Different data, different columns. Do not put different numbers (for example, you costs and your sales), on the same column. It is incredibly likely for you to get confused, and it makes computations and data handling more difficult. Give each file a clearly understandable name. It takes little effort and speed things up. It makes them easy to identify visually, and easier to find using the windows search function. Use Comments. Even if you don't usually work with a large amount of data, it is still very easy to get confused. This applies especially if you come back to the data you have created a long time before. Excel has a great solution to offer: comments.

The usefulness of comments

Just do a right click on the cell you want to comment, and then select insert comment .

You can use them:

to explain the content of a cell (i.e. unit cost according to Mr Doe's estimates) to leave warnings to future users of the sheet (i.e. I have a doubt about this calculation... )

Get advanced sales forecasts with our webapp Salescast. Lokad specializes in inventory optimization through demand forecasting. The content of this tutorial - and much more - are native features of Salescast.

Getting Started: a simple forecasting example using trendlines

Viewing your data

Let us now do our first forecast. In this part, we will be using this file:Example1.xls. To repeat the steps by yourself, you can download the file. This data serves just as example. Our Data:- in the first column, data about the unit costs of similar products. The unit cost reflects the quality of the product.- in the second one, data about how much has been sold. What we want to know: If we sell another product, with a quality corresponding to a cost of $150/unit, how many units can we expect to sell? How we get there: Here, it is pretty simple. We want to find a simple mathematical relationship between unit cost and sales, and then use this relationship to do our forecast.

First, it is always useful to create a graph in Excel, in order to take a look at the data. Your eyes are excellent tools that can help you identifying trends in a few seconds. To do this, we select our data, then use Insert > Chart, and chose the XY(Scatter) option. We want to estimate sales as a function of quality, therefore we put the unit cost on the horizontal and the sales on the vertical axes. Now, we stop a few seconds and take a good look at what we see: the relationship seems to be increasing, and linear. In order to get an idea of the exact form of the relationship, we right click on the chart, and select the "Trendline" option.

Creating a trendline

Now, we have to select the relationship that seems to "fit" (i.e. best describe) our data. Here again, we use our eyes: In this case, the dots are almost in a straight line, so we use the "linear" setting. Later on, we will use other - more complex, but often more realistic - settings, like "exponential". Our trendline is now displayed on the chart. Another right click allows us to display

the exact form of the relationship: y = 102.4x - 191.64. Understand: Number of unit sold = 102.4 times the unit cost - 191.64. So, if we decide to produce at a $150 unit cost, we can expect to sell 102.4*150 191.64 = 15168 units.

A linear trendline

We have just completed our first forecast successfully. However, be careful: The software is always able to find a relationship between the two columns, even if this relationship is in reality very weak! Therefore a check for robustness is required. Here is how you quickly do this:

First, always take a look at the chart. If you find the dots closely located to the trendline, as is the case in our example above, there is a good chance that the relationship is robust. However, if the dots seem to be located almost randomly and are in general quite far from the trendline, then you should be careful: the correlation is weak, and the estimated relationship should not be blindly trusted.

The dots are everywhere: no evident relationship, unreliable forecasts

The dots "make sense", and allow more reliable forcasting

After taking a look at the chart, you can use the CORREL function. In our example, the function would read: CORREL(A2:A83,B2:B83). If the result is close to 0, then the correlation is low, and the conclusion is: there is simply no real trend. If it is close to

1, then the correlation is strong. The latter is a helpful, since it increases the explanatory power of the relationship you found. There are more subtle ways of making sure the correlation is high; we will come back to this later on. Of course, these last steps can be automated: you don't have to note the relationship, and use your pocket calculator to do the computation. You need the Analysis Tool Pack!

Forecasting using the Analysis Tool Pack

Before proceeding, you should check if the Excel ATP (Analysis Tool Pack) is installed. Refer to the section Installing the Analysis Tool Pack, for further information. Unfortuntaley such perfect sales data with such a nice, simple linear relationship is quite uncommon in real life. Let us have a look at what Excel has to offer for more complicated situations, with more complicated data.

Going further: the example of exponential fitting

As you might imagine, such a linear model of your data is not always likely. In fact, there are many reasons to believe that it should follow an exponential model. Many behaviors in the economy are driven by exponential equations (i.e. interest compounding computations are a classical example). Here is how to perform an exponential fitting: 1) Take look at your data. Draw a simple graph, and just look at it. If they follow an exponential evolution, they should look like this:

perfect exponential shape

This is the perfect case. Of course, the data will never exactly look like this. But if the dots seem to approximately follow this repartition, it should encourage you to consider exponential fitting.

Using trendlines

As in the previous example, you can always draw a chart of your data, ask for a trendline, and choose exponential instead of linear. Then, gather the displayed equation, as usual. 2) Luckily, you can also do all this directly, using the Analysis Tool Pack: Put all your data into a blank excel sheet, and go to Tools => Data Analysis

Installing the Analysis Tool Pack (ATP)

The ATP is an add-in that comes with Microsoft Excel, but that is not always installed by default. In order to install it, one can proceed as follows: 1. Make sure you have your Office CD with you. Excel might require you to insert the CD in order to install the ATP files 2. Open an excel sheet, and go to Tools Menu, and then select Add-Ins. Check the first box of the window, labeled Analysis ToolPack . 3. Insert your Office CD if asked to do so by the software. 4. That's it! Notice that your Tools menu now includes many more features, including a Data Analysis option. This is the one that we will use the most.

Using the Analysis Tool Pack (ATP)

... in a linear setting Now, let us come back to our linear example. If your data looks good (see above illustration), you can use the ATP to get a direct estimation of the functional form, without going through the trendline process. Open your data sheet, then open the tools menu and select Data Analysis . A window pops up, asking you what kind of analysis you want to perform. Select regression for linear settings. Now you need to give Excel two arguments: an Y range and an X range . The Y range indicates what you want to estimate (i.e. your sales), and the X range contains the data that you think can explain your sales (here, your unit cost). In our example (see example1.xls), our sales data are in column B, from row 3 to row 90, so you need to put $B$3:$B$90 as the Y range, and $A$3:$A$90 as the X range. When you are done, click ok . A new sheet appears, containing the regression results .

The Analysis ToolPack Output, in the case of an Ordinary Least Squares regression

The most important result is contained in the Coefficients column at the bottom of the sheet. The intercept is the constant, and the X variable coefficient is the coefficient of X (here, your unit cost). Hence, we find the same equation we found using the trendline function. Sales = Intercept + Xcoefficient * unit costSales = 126 + 100 * unit cost This sheet also contains a useful number that gives you information about how good your estimation is: the R Square . If it is close to 1, then your estimate is good, which means that the equation you found is a fairly good representation of your data. If it is close to 0, then the estimation is not good, and you should probably try another kind of fitting (see exponential fitting below). This method is probably faster than the trendline techniques. However, it is a bit more technical and much less visual. So if you do not want to go through the trouble of plotting and eyeballing your data, make sure you at least check the R square value. ... using exponential fitting If the linear estimation does not go well (for instance if you obtain a low R-Squared, i.e. 0.1), you may want to use Exponential Fitting. Launch the Analysis Tool Pack, as usual: Open your data sheet, then open the tools menu and select Data Analysis . A window pops up, asking what kind of analysis you want to perform.

In our exponential setting, what we want to select is exponential . Notice that excel only asks you for one input range. Select the column that contains the data you want to forecast (i.e. unit cost), and pick a smoothing factor.

How do I know what model to choose?

Note that you do not need to try every estimation method and then select the one that works best. You do not need to try each estimation method in order to find the one that works best for you. This can only be achieved through automation, since there is such a large number of methods available. If you want all models to be benchmarked against your data, you can consider sending them to Lokad. We have a powerful computer system that tests all models and selects only the ones that work best with the data of your business (find out more about what Lokad has to offer). A powerful tool, however, that enables you to select the proper model is your own eyesight: plot your data (see section 1), compare them to the following illustrations, and pick the model that looks like your data.

The Women's Department had a cumulative markup percent of 55% and a markdown rate of 24% for the month of October. What was the gross margin percent for October? (A) 44.2% (B) 43% (C) 41.8% (D) 31% The Jewelry Department buys necklaces for $60 per necklace. If each necklace has an initial markup percent of 75% of retail, what is the retail price of each necklace? (A) $105 (B) $180 (C) $210 (D) $240 The manager of the Footwear Department hopes to achieve an annual turnover rate of 4.0 for next year. In order to achieve this rate, approximately what average weekly sell through must be attained? (A) 13.0% (B) 8.3% (C) 7.7% (D) 1.9% Questions 4 - 5 refer to the table below.

For the three month period shown in the table, what is the average value of inventory at retail? (A) $612,000 (B) $636,500 (C) $643,667 (D) $675,333 What is the turnover rate for the three month period shown in the table?

(A) 0.91

(B) 0.88

(C) 0.87

(D) 0.83

Last year, the accessories department had a gross margin percent of 40%, a turnover rate of 5.5, and a percent markup on average inventory of 55%. What was their gross margin return on investment (GMROI) last year? (A) 0.99 (B) 4.00 (C) 4.89 (D) 6.19
Answers: 1. (A) 2. (D) 3. (C) 4. (B) 5. (B) 6. (C

Sales forecasts are an essential element in a business plan. A sales forecast sets the standards for expenses, profit and growth. Forecasting is basically making an educated guess as to how a company will do in the near future.
Difficulty:

Moderately Challenging

Instructions
Things You'll Need

1. How to Forecast Retail Sales

o

Past reports on expenses, profits and growth Industry trend reports

1
Analyze past reports. If this is a new business, you will be making educated guesses based on the trends in the retail industry. However, if you have been in business for at least a quarter, you can prepare a more accurate forecast.

2
Look for trends. Examine your past reports and look for trends in losses and profits. In retail businesses, it is accurate to assume that trends will continue. Usually there are only specific times of the year in which sales will dramatically increase or decrease in retail.

3
Estimate. If you are preparing a forecast for an entire year, remember to account for holiday sales and your decline in sales after the holidays. Outside of those specific times, your forecast should be pretty much the same year round. So just make an educated guess based on your previous information.

4
Make your charts. Now that all the information has been computed, input it into a chart or an Excel document. In Excel you can put all of the reports into one document. There will be a page in the document for each of the months for the first year and then yearly reports for the next three years.

Add the charts to your business plan. Once the reports have all been finished and they have been printed out, add them into your business plan in the appropriate area.

Read more: How to Forecast Retail Sales | eHow.com http://www.ehow.com/how_2307554_forecastretail-sales.html#ixzz1ZKpjQmvK

How to Forecast Seasonal Sales With Moving Averages

By Josh Victor, eHow Contributor updated June 07, 2011

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Sales forecasts must take into account seasonal discrepancies.

Sales forecasts do not exist in a vacuum. They must incorporate seasonal fluctuations in the data that occur every year. For example, the Christmas shopping season is the most active time for retail sales, while the summertime is the most active for home sales. Analysts can use moving averages to flatten out the fluctuations to provide a more accurate analysis.
Difficulty:

Challenging

Instructions
1.
o

1
Examine all the data from the previous period, either the year, season, month, week or day. For this example, we will use retail sales and consider the change over different seasons.

2
Look at the data from the seasons from the previous year -- for example, the October, November, and December months from a year ago. Use the sales data as the baseline for your moving average. Perhaps the sales per day were $1,000 for a store.

3
Note the data from the other seasons of the year compared with their previous year. How much did the first quarter of year two grow over the first quarter of year one? Conduct the same analysis for the second and third quarters. This will give you a base projection for the final quarter of the year.

4
Note the change in the average sales per day of the first three quarters of year two over year one. If the average was 10 percent growth, project a 10 percent growth for the winter quarter as well in terms of sales per day.

5
Substitute each day of the fourth quarter of year one with the new figures. For example, if sales for the first day of October were $900 in year one and $990 in year two, replace the value of the data from last year's number. This will create an updated blended average for the fourth quarter. As you progress throughout the quarter, the moving average will change, with each new day replacing the previous year's data. By the end of the quarter you will have an average sale per day for the previous quarter. This can then be used to forecast next year's sales.

Read more: How to Forecast Seasonal Sales With Moving Averages | eHow.com http://www.ehow.com/how_8558547_forecast-seasonal-sales-movingaverages.html#ixzz1ZKpu1BeX

How to Create a Retail Merchandising Plan

By Jonra Springs, eHow Contributor updated April 22, 2011

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Effective retail merchandising attracts shoppers and generates sales.

Retail merchandising is the practice of acquiring stock that will generate sales and attractively displaying it to let customers find it easily and ecourage purchases. Managers and sales associates review past trends and consider current fads and market conditions in order to make sales forecasts for specific items. Clothing store managers near beaches, for example, order men's swimming trunks in varying leg lengths and stock shorts for women to wear over bikini bottoms based on such forecasts.
Difficulty:

Moderately Challenging

Instructions
1.
o

1
Make sales forecasts for specific items instead of overall categories of items. Look at the sales trends for walking shorts, casual shorts, running shorts, skater shorts and all

classes of men's and women's shorts individually to decide what types to stock for a given season. Simply looking at the sales for men's or women's shorts as a whole fails to address the specific items that will sell this season.
o

2
Use the storefront and windows to attract your target clientle. Place posters and mannequins in apparel out front that define your merchandise. Light front windows with an appealing glow from the center mall aisle or sidewalk. Allow different employees to change the storefront often to create a fresh prospective and constantly attract new customers.

3
Place the merchandise strategically throughout the store. Use the front and center location for your top selling items to ensure the majority of customers find this stock immediately. Place related accessories near the items they are made to accompany, such as ties near dress shirts and socks near the shoes. Put add-ons and impulse items near the point of sale desk for sales people to make quick selling suggestions.

4
Illuminate the store appropriately for the target market. Place spotlights on top selling items in any store. Use energetic lighting with colors and flashing or moving lights in a store selling casual clothing for young buyers to create excitement over the stock. Make the lighting bright enough for mature customers without loud colors or flashing lights in a store that sells dress clothes and shoes.

5
Play music that caters to your market. Use up-tempo pop music for the younger generation, and generation-specific pop music or elegant classical music for other adult markets.

6
Give the store an appealing fragrance as part of your retail merchandising scheme. Use a cleaner with citrus ingredients or spray a gentle fragrance. Light scented candles on shelves safely out of reach of customers and away from flammable products. Avoid heavy odors such as incense or perfumes, which may drive away some customers.

Read more: How to Create a Retail Merchandising Plan | eHow.com http://www.ehow.com/how_8277921_create-retail-merchandisingplan.html#ixzz1ZKq4WZNH

Exercises for Sales Forecasting With Excel

By Sara Huter, eHow Contributor updated January 25, 2011

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Excel is a cost-effective software tool for small businesses.

Microsoft Excel is a software tool for forecasting and budgeting. Predicting or forecasting sales is important so that a business owner can determine whether his products will be profitable after subtracting expenses from sales. Forecasting sales also helps in cash budgeting. Sales forecasting using Excel can help estimate sales growth, dependence on other products, seasonal sales and impact of discounts. Excel makes the process easy and reliable.

1. Forecasting Sales Growth

o

If you know that sales for a product will increase at a certain percentage, forecasting sales is a simple process of calculating the growth rate and total sales for each month. Try this exercise: Last month's sales figure for coffee machine repair company "Coffee Bits" was 1,000 units. Sales are expected to grow 3 percent monthly. Use Excel to calculate next month's sales. In Excel, enter formulas without spaces or thousand separators (commas). Remember to start a formula with an "=" sign. For example, input the next month's sales formula as "=1000*(1+0.03)" and press "Enter." The result should be "1030" or 1,030.

2. Forecasting a Product's Relationship to Another Product

o

When one product is dependent on another product's sales, forecasting sales is a matter of quantifying the relationship between the two products, and calculating sales based on the forecasted sales of the related product. Try this exercise: Assume that one of the products "Coffee Bits" sells is a specific part for a high-end Italian espresso machine. Therefore, sales and repair orders for the Italian coffee machine will drive sales for one Coffee Bits product. For example purposes, assume that 500 Italian coffee machine units will be sold next month and that Coffee Bits sells 1.1 parts on average for each coffee machine sold. Forecast the sales for this part for the next month. In Excel, input "=500*(1.1)" and press "Enter." The result should equal 550.

3. Forecasting Sales for an Expected Price Reduction

o

Companies often attempt to increase sales by reducing the price. Sometimes they hope to clear their inventory to prepare for new products. Try this exercise: Assume that the Italian espresso manufacturer has a new model coming out this year and wants to clear inventory by selling the espresso machines at steep discounts. This will result in increased sales for Coffee Bits. For example purposes, assume that the discount will result in a 50 percent increase in sales from a normal level of a million units. Calculate sales due to the discount. In Excel, input "=1000000*(1+0.50)" and press "Enter." The result should equal "1500000" or 1.5 million.

4. Forecasting Seasonal Sales

o

Many product sales follow a seasonal pattern. For example, flannel sheets tend to sell well in the winter months, but not in the spring and summer. Similarly, some products, such as boxed chocolates, sell better during the holiday season as gifts. Try this exercise: Assume that most of the Italian espresso machine sales occur during the holiday season. It would be reasonable to assume that the parts sold by Coffee Bits will have their highest sales a month prior to the holiday season sales period for the espresso machines. For example purposes, assume that Coffee Bits expects to sell 12 million units over the next twelve months and that 80 percent of these sales are expected to happen in August, September and October. Calculate the sales in these months. In Excel, enter the following formula to calculate holiday season sales: "=12000000*0.80/3" and press "Enter." The result should be "3200000" or 3.2 million.

Read more: Exercises for Sales Forecasting With Excel |

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Optimization Tools for Sales Forecasting

By Maria Woehr, eHow Contributor updated January 26, 2011

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Optimization tools for sales forcasting

There are various optimization tools to use for sales forecasting. The tools employ statistical and modeling techniques to help forecast sales of future events. Most commonly, these tools are known as customer relationship management (CRM) tools. There are two types of forecasting methods that these tools use: causal and noncausal. Noncausal forecasting uses historical data to develop future predictions. The casual method predicts sales based upon current factors such as pricing and promotions.

1. Finding the Right Sales Optimization Tool

o

The goals of CRM tools are to gain new clients through leads and to retain old ones, while also cutting down on business costs and forecasting future sales. Companies such as Salesforce.com and Oracle offer software that can help break down your company's performance including customer transactions and pending invoices. The software will also generate predictions based upon history, market conditions and goals that your company have.

Information You Need for a Sales Forecast

To get a precise sales forecast using sales forecast optimization tools, you will need the right information on hand. Make sure you have your dollar sales volume for the past several years and a list of all the external and internal factors that could impact your business. The more thorough the information, the more precise your sales forecast will be. Some information that sales optimization tools will need is the seasonality of the business, direct and indirect competition, consumer earnings and productivity changes.

Exponential Smoothing
o

Sales forecasting optimization tools generally use a forecasting technique called exponential smoothing to predict business. Exponential smoothing compares a previous forecast to actual results. The result will be an error figure that can be factored in as a base in current and future forecasts.

Trending
o

Sales optimization software will identify trends to indicate where there are missed opportunities. Trends are important forecasting tools for planning and preparation. By identifying trends, you can identify the highest selling months to make sure you have enough inventory on hand and that sales efforts are strong enough.

Accounting Spreadsheets
o

Many sales forecasting programs use some form of Microsoft Excel or an accounting spreadsheet application that helps organize sales history data for forecasting, customer lists and products. These applications also generate charts and graphs so this information is easier to understand.

Analytics
o

Many optimization tools for sales forecasting have exceptional analytics that can monitor -- in real time -- almost all aspects of your business, such as customer transactions, invoices, sales and marketing actions and forecasts. Analytics are important in understanding your customer base and what they get out of your service. Analytics can identify customer satisfaction levels, response times and agent performance. By targeting exactly what customers need, you will be able to provide them with the best service and increase sales.

Read more: Optimization Tools for Sales Forecasting | eHow.com http://www.ehow.com/info_7851481_optimization-tools-salesforecasting.html#ixzz1ZKsaT2uL

How to Forecast Sales

By an eHow Contributor

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Long Range Forecast Business Sales

Sales are the most important aspect of any business. Forecasting sales is both a science and an art. The ability to accurately forecast sales will substantially increase the profitability of your business, as there will be minimal waste, obsolete inventory or costs related to over-staffing.
Difficulty:

Moderate

Instructions
1.
o

1
Review the last six months of sales figures on a daily, weekly, monthly and quarterly basis. How do they vary day to day or week to week. Is there a pattern to the activity?

2
Inspect the competition. Are their locations busy in comparison to yours, slower or about the same? Read industry focused magazines, newsletters. Attend trade shows and conferences. These activities will give you a sense of what is happening in the industry and the level of activity.

3
Calculate the percentage increase or decrease of sales from month to month. This is a two step calculation: Take current month sales, subtract last month sales. Divide this value by the last month sales. This value is the percentage increase or decrease.

4
Calculate the percentage increase or decrease value for the last 6 months. Compare the values and determine if there was a specific activity that related directly to the

changes. An example would be a highly advertised sale, marketing or advertising campaign.

o

5
Remove the months where the changes can be related to a specific activity and calculate the average change. The average is found by adding up all the values and dividing by the number of values. This is your base sales percentage change.

6
Take the dollar value of sales for last month and multiply by the average percentage sales change. This is a conservative sales forecast.

Read more: How to Forecast Sales | eHow.com http://www.ehow.com/how_2104314_forecastsales.html#ixzz1ZKsxZ3jU

How to Forecast Sales with Excel

By an eHow Contributor updated April 09, 2011

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Forecast Sales with Excel

Forecasting is more of a science than an art with advent of computer programs that have the ability to accurately predict future event in case sales. One popular program that is very useful in sale forecasting is Microsoft Excel. Excel is powerful spreadsheet software that allows users to forecast future events based on a detailed statistical analysis.
Difficulty:

Moderately Challenging

Instructions
Things You'll Need

Microsoft Excel Computer

1.
o

1
Make sure the data is complete, correct and ordered. There needs to be enough historical sales data to accurately perform an analysis, typically seven to ten time periods; the longer that forecast timeline the more accurate the forecast. The data must be ordered from oldest to newest. If there is any missing data for a time period, then estimate the number as accurately as possible. the time periods need to be uniform; for example compare months to months or year to years.

2
Enter the data in an excel spreadsheet. Title the columns appropriately; for example one column entitled years the other entitled sales. Highlight the data to be included for the purposes of the forecast. From the main menu choose "Insert". From the insert

menu select "Chart". In the chart dialogue box click the standard types tab. Locate the chart option and click on "Line". Choose "Finish".
o

3
Determine the trendline. Click on the chart area that was just created. The chart menu should appear. From that menu select "Add trendline." The trendline dialogue should be present. Choose the type tab in trendline dialogue box. Under the type tab click on linear. Now click the options tab. Choose the options tab and in the forward box type the number of years to forecast. Make sure the display R-square value option is checked. Click "OK".

4
Know what the R-squared value means. The closer the R-squared value is to one, the more accurate the data set is purported to be. The types of trendlines may need to be changed to R-squared result that is more accurate.

5
Change a trendline to verify the most accurate type was utilized. First select the chart. From the format menu choose "selected trendline." Change the type of trendline to logarithmic. Repeat the previous steps to change the type to a moving average trendline. Trying all three trandlines give the users a better idea of which one is most accurate based a R-squared result

Read more: How to Forecast Sales with Excel | eHow.com http://www.ehow.com/how_2078464_forecast-sales-excel.html#ixzz1ZKt8G0OL