Pricing insights Vol.1 - Issue 7
The challenge: Forecasting sales performance
When preparing yearly budgets and periodical forecasts, many companies struggle with accurately predicting their net sales. The issue is that net sales contain many components that are complex to forecast:
Net sales = (Volume x Price) – Discounts/Rebates – Allowances – Returns
Why is it so important to accurately forecast this part of the P&L? First of all, net sales directly impact the bottom line: revenue and profit. Investment decisions are made based on these forecasts. Secondly, off-invoice rebates and allowances often represent material amounts to be accrued. Over -or understatement of these accruals have a direct impact on asset utilization and working capital.
Pricing is one of the most powerful levers available for predicting and improving both revenue and profitability. By ensuring predictable, accurate and available price levels, net sales forecast accuracy can be improved and better business decisions will be made.