Business Paper-Sales Forecasting

Sales Forecasting

Sales forecasting is an essential step in creating financial projections for the business plan. One key piece of information for preparing the sales forecast is the demographic profile of the local community.

Assignment Instructions
In this activity you will have an opportunity to forecast monthly sales for Creekview RV Park, a campground catering exclusively to recreational vehicles (RV’s). While there are various methods of sales forecasting, in this activity you will use a method called “market percentage” where you determine the total market for RV parks and then estimate Creekview’s share of that market.
Read through the Creekview Research, then answer the questions below.

CREEKVIEW RV PARK RESEARCH
Todd Graner spent his childhood summers traveling throughout the country in an RV with his family. His dream has always been to open his own RV park, and the day is finally here! Todd has inherited from his grandparents a ten-acre tract of land in Haywood County, North Carolina (adjacent to Great Smoky Mountains National Park and the Blue Ridge Parkway) that he will convert into a campground exclusively for recreational vehicles.

Before starting his endeavor, Todd decides to research other campgrounds in the vicinity and to conduct demographic studies to understand how many visitors he could expect. Todd plans to use the findings of his research to forecast sales for his first year, which will help him to complete “projected” cash flow, breakeven analysis, and income statements, all of which he can use when he goes to potential lenders for start-up capital.

Through his research, Todd finds the following about his future Creekview RV Park:
The park can accommodate 64 rentable RV spaces.
According to the local Yellow Pages, there are 15 existing RV park competitors in the area.
The rate for renting an RV space varies from $28 – $50 per night. Based on the amenities that Creekview will provide, he sets a price of $38 per night.
Todd decides to keep Creekview open year-round to accommodate full-time RV’ers.
His projected start-up costs (converting the park into an RV camp, building, etc) equal $229,600.
His projected operating costs (without a loan repayment) equal $4,147/month ($49,764 total for Year 1).
Using figures from The National Park Service’s “Monthly Use Report” for “Blue Ridge Parkway” and “Great Smoky Mountains” (national parks that are near Creekview) for the last year shows 108,878 RV overnight stays in the Haywood County area.
Monthly distribution of total yearly visits is as follows:
Jan. 1% Apr. 2% July 22% Oct. 15%
Feb. 1% May 9% Aug. 16% Nov. 1%
Mar. 1% Jun. 17% Sept. 14% Dec. 1%

Work through the following questions to help Todd forecast sales for Creekview RV Park.

Assuming equal share, what will be Creekview’s percentage of the campground market?

New businesses do not necessarily achieve their full projected market share or capacity in the first months of business so it is important to “phase in” sales in the first months and years of operations. We will assume a 4% market share (instead of the percentage calculated in the first question) for Creekview to forecast sales for its first year of business since it is a start-up.

How many total RV site rentals do you forecast for Creekview’s first year of operation?

How many RV site rentals do you forecast for each month of Creekview’s first year of operation?

What is the forecast for monthly sales for Creekview Park?

Reflection Questions
Why is it important to forecast sales as part of business planning?

What other factors might influence the sales forecast for this business?

How would the forecast for the business differ in future years?

Are there other ways to forecast sales? What other resources could be used?

How does the sales forecast relate to cash flow? To breakeven analysis?

Why is it wise to be conservative with sales forecasts?