Have you ever wondered how to predict sales accurately? Business forecasting software can help you to achieve the best results in forecasting future demand. Business forecasting software uses forecasting methods to enable the management of production and operations effectively. Using business forecasting software, you can determine your business’s future need and manage the processes required to manufacture and distribute products.
Naïve forecasting is the most basic of forecasting methods used for predicting accurate sales based on historical data. Read more to see what naïve forecasting is and how it can be useful for your business.
What is naïve forecasting?
Naïve forecasting is the technique in which the last period’s sales are used for the next period’s forecast without predictions or adjusting the factors. Forecasts produced using a naïve approach are equal to the final observed value. The naïve forecasting method is the easiest of all methods and it is suitable for finance and sales departments because it ensures that these departments work to improve the company. Other, more sophisticated, forecasting methods include the moving averages method (MA), linear trend forecasting, and exponential smoothing.
The main method we are focusing on in this article is known as naïve because there are no calculations or formulas, only an assertion of the actual sales numbers. In some cases, naïve forecasting can accurately predict situations, while others can be problematic because it considers only the previous period to forecast the next period. Thus, historical sales data is the foremost requirement for naïve forecasting and factors such as seasonality are not considered. Oftentimes, salespeople will use naïve forecasting to make goals to make sure they are always either improving or maintaining their contribution to the company.
Forecasting methods in a time series:
1. Naïve approach forecasting
2. Moving averages
3. Linear trend projection
4. Moving averages
How do you calculate a naïve forecast?
The naive forecasting method in Microsoft Excel does not generate a final forecast; instead, it provides information about the “system.” The “system” refers to the type of market or industry in which you are forecasting.
As previously mentioned, calculating a naïve forecast is a simple technique. Consider the previous month’s sales and use it to forecast the sales for the next period.
What is seasonal naïve forecasting?
Seasonal naïve forecasting is similar to the naïve forecasting method, but its predictions are based on the previous value from the same season. The exponential smoothing method mentioned earlier, does not consider seasonal components, but it uses decreasing weights for forecasts. Therefore, using both the exponential smoothing method and the naïve forecasting method, one could gain a more accurate picture of their sales.
Naïve forecasting can be useful for various industries, especially startups. Anytime there is a limited number of sales histories, naïve forecasting can be an effective way to promote growth within a company. Get in touch with our experts here at Avercast to find out other more complicated and more accurate techniques for demand planning and forecasting your business!