Profit Target

Finance allah shmoop what is forecasting one better than three

casting Okay so forecasting in a financial sense isn't all

that different from the crazed witchy ramblings of a medium

in a say aunts divine ing your future dating life

not necessarily on tinder which she and tones will be

cloudy with a chance of rejection Our company's forecast future

revenues and profits as driven by sales volumes and usually

and the pricing of whatever products they're moving out the

door Why like why bother Well you sell so many

units of your product what can you do about it

Well in practice there's plenty you can do about it

Let's say you won huge discounts and extruded plastic volumes

for your sneeze guard business The snot thickens any way

at all that you get in return for ordering five

years supply Your supplier loved knowing well in advance what

the demand would be for their extruded plastic so that

it could negotiate with its unions It's plastic mining contracts

its natural gas supplier teo melt the plastic and so

on So in return for a lot of commitment came

a lot of discounting You've now committed to buy five

years worth of extruded plastic supplies no matter what Like

twenty five tons this year thirty tons next thirty five

the next and so on But after year to the

economy softens and buffets have decided to cave to the

germs They aren't just buying enough sneeze guards Toe warrant

your commitment of thirty five tons of extruded plastic Well

what can you dio a cry Yes you always do

that Be wine and blame washington That's a good one

that always works Or see Spend money on marketing and

discounting to just quote get through it unquote So yeah

the answer to see you're on the hook for thirty

five tons no matter what So rather than have it

just pile up in the back of a factory you

lower prices and spend a bit more on marketing And

instead of only needing a twenty seven tons that the

existing market would have had you send out the door

you stimulated demand Five tonnes worth They now have thirty

two tons needed Teo get sent out for snot guards

and yes that three tons less And you really wanted

to sell But it's not terrible You don't go bankrupt

in three tons of plastic fits right here in the

back of the factory yard Thing neither Yeah that stuff

is heavy So through forecasting which letyou know very early

the softness in the market demand for your sneeze guards

you were able to stave off what could have been

a calamitous slow down or even shutdown bankruptcy or whatever

in production Yeah and that's nothing to sneeze at Gross