Sales Forecasting
Using Machine
Learning
This presentation explores the application of machine learning
to sales forecasting. It covers the process from problem
understanding to model evaluation and hyperparameter
tuning.
by Yuvraj Rajput
1. Problem Understanding
Accurate Predictions
Forecasting future sales accurately is crucial for businesses to
make informed decisions and allocate resources effectively.
Strategic Planning
By understanding future sales trends, businesses can plan their
marketing campaigns, inventory levels, and staffing needs
strategically.
Improved Efficiency
Sales forecasting helps businesses optimize operations, reduce
costs, and improve overall efficiency by aligning resources with
anticipated demand.
2. Data Collection
1 Historical Sales Data
This data provides a baseline for understanding past sales patterns
and identifying trends.
2 Product Information
Details about each product, such as price, category, and availability,
help analyze sales variations.
3 Customer Data
Information like demographics and purchase history provides
insights into customer behavior and preferences.
4 External Factors
Factors like economic indicators, competitor pricing, and weather
data influence sales patterns.
3. Data Preprocessing
Missing Values 1
Handle missing values by removing rows or
columns or imputing them with relevant data.
2 Outlier Detection
Identify extreme data points that might skew the
model's performance and handle them
Feature Engineering 3 appropriately.
Create new features from existing data to improve
model accuracy and capture relevant information.
4 Normalization
Scale data to a common range to prevent features
with larger values from dominating the model.
Train-Test Split 5
Divide the data into training and test sets to
evaluate model performance on unseen data.
4. Feature Engineering
Date-Based Features Lag Features Cyclical Encoding
Extract month, week, day, and Create previous day, week, or Represent 'Day of the Week' or
seasonality information from the month sales as input features to 'Month' in a cyclical form to
'Date' column to capture cyclical model the impact of past sales capture seasonal patterns and
patterns in sales. on current sales. avoid linear trends.
5. Model Selection
Linear Regression Decision Trees & Random Forest
XGBoost
Suitable for simple, linear Capable of capturing non-linear An advanced gradient boosting
relationships between features relationships and providing algorithm that excels in handling
and target variable. interpretable insights into the large datasets and complex
model's decision-making process. relationships, providing high
accuracy.
6. Example: XGBoost Model
Model Initialization
Initialize the XGBoost model with default parameters or custom settings.
Training
Train the model using the preprocessed training data to learn the
relationships between features and sales.
Prediction
Use the trained model to predict sales on the unseen test data.
Evaluation
Assess model performance using relevant metrics like RMSE, MAE,
and R-squared.
7. Model Evaluation
Metric Description
RMSE Measures the square root of
the average squared
differences between predicted
and actual values.
MAE Measures the average
magnitude of the errors
without considering their
direction.
R² Score Shows how well the model
explains the variance in the
target variable, indicating the
model's overall fit.
8. Hyperparameter Tuning
n\_estimators learning\_rate max\_depth min\_child\_weight
The number of trees to build The step size for updating The maximum depth of each The minimum sum of
in the ensemble, balancing model weights during tree in the ensemble, instance weight (hessian) in
model complexity and training, controlling the controlling the model's a child node, preventing
overfitting. model's learning speed. complexity and ability to overfitting by controlling the
capture non-linear patterns. minimum weight required to
split a node.
9. Conclusion and Future Work
1 Model Accuracy
The developed model achieved satisfactory accuracy in
predicting sales, demonstrating the potential of machine
learning in this domain.
2 Future Directions
Exploring advanced models like LSTMs for time series data and
incorporating additional features to improve model accuracy
and capture complex patterns.
3 Business Impact
Accurate sales forecasting empowers businesses to make data-
driven decisions and optimize their operations for greater
profitability.
