Build a Sales Forecast with Exponential Smoothing In Google Sheet

Exponential smoothing is a method to spot important changes in datasets by considering the recently updated data. This method, known as averaging, is beneficial in making short-term forecasts.

Given numerous forecasting ways, what makes exponential smoothing better than others?

List of perks of exponential smoothing,

It is easy to learn and apply.

Exponential smoothing only required three pieces of data. The first requires the forecast of the most recent time. Second, it requires the real value for that time. And third, it requires the value of the smoothing constant, the factor that reflects the weight provided to the most recent data values.

It produces precise forecasts.

An exponential smoothing produces a forecast for one duration ahead. Then, using the projection technique, forecasts for most periods are generated. The forecast is accurate as it accounts for the change between actual projections and what happened.

It gives meaning to recent observations.

Observed data is the total of two or more components; one is the difference between the observed value and the true value, known as random error. In a smoothing technique, this random error is neglected.

Methods like exponential smoothing are accurate only when a reasonable amount of steadiness occurs between the past and future. As such, it’s best for short-term forecasting as it predicts future trends and patterns that look like current trends and patterns.