Quantitative forecasting requires hard data and number crunching, while qualitative forecasting relies more on educated estimates and expert opinions. Using a combination of both of these methods to estimate your sales, revenues, production and expenses will help you create more accurate plans to guide your business.
Quantitative Forecasting Techniques
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 you 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 analyses or other information from expert sources such as government agencies, trade associations and academic institutions.
Qualitative Forecasting Techniques
Qualitative forecasting techniques come from the experience and instincts of seasoned business experts. These forecasting techniques aren’t just guesses; they include interpretation of data combined with the professional expertise you've developed over time on the job. For example, if you want qualitative information for projecting sales for the year, you might estimate the impact of a new ad campaign or promotion your company is planning, look at the effects that new technologies might have on consumer purchasing and take into account recent social fads and trends. You might forecast demand by holding focus groups of customers to discuss and gauge their reactions to several new product features your company is considering.
Forecasting for Sales
Quantitative forecasting techniques for sales include looking at census data for a geographic area, reviewing historical seasonal sales reports and reviewing sales reports to see which products are maturing and showing recent slowdowns in sales and which products have recently begun selling at higher volumes. Qualitative forecasting techniques include asking your sales reps for their projected sales for the coming year, asking customers about their upcoming product needs and asking distributors what other products are selling well or poorly.
Forecasting for Cash Flow
Cash flow forecasting is important for your business because it helps you project when you will receive money and when you will have bills to pay, rather than recording income by the date of a customer order or payables using a monthly average. Quantitative forecasting techniques for projecting cash flow can include looking at last year’s bank deposits and checks or credit card payments. You can look at last year’s payables reports or invoices to examine when customers were supposed to pay and when they actually did; this helps you create a cushion for planning on income. Qualitative methods for planning cash flow include asking your salespeople to project their sales for the year by month or asking your distributors if they foresee any upcoming slowdowns or buying increases during certain times of the year.