Question

Example of a sales forecast with explanation.

Answer 1

Sales forecast involves estimation of future sales of a company. All business makes sales forecasts for the purpose of being able to make informed business decisions. Companies in all sectors and industries make sales forecasts.

For example suppose we take the case of a hotel. It has 500 rooms which is expected to remain the same in the next 5 years. Its occupancy rate is 70% now and is expected to increase each year by 250 basis points (or 2.5%) each year going forward. Its average room rate (ARR) is currently $200 and this is also expected to increase by $80 per year. Note that ARR = Total room revenue/Total rooms occupied.

Using the above figures the hotel can easily prepare its sales forecast for the next 5 years and can make appropriate strategic decisions on how to increase occupancy, how to increase ARR etc.

Year	Total rooms	Occupancy rate	ARR	Total sales = (Total rooms*Occupancy rate)*ARR
Now	500	70.0%	200.00	$70,000
1	500	72.5%	280.00	$101,500
2	500	75.0%	360.00	$135,000
3	500	77.5%	440.00	$170,500
4	500	80.0%	520.00	$208,000
5	500	82.5%	600.00	$247,500