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Sales Forecasting Made Easy

By M. Michelle Poskaitis, CEO, Originations Marketing LLC

Go get your crystal ball. It’s time to foretell the future! Did you think forecasting was a complicated mathematical science? It can be. But for day-to-day marketing management, at best it’s typically the science of guessing. But, you won’t rely on SWAGs either. (SWAG is a technical statistics term for “silly wild a-- guess,” a.k.a. pulling numbers out of thin air.) Forecasting requires a balance of logic and intuition.

Is the weather forecast consistently and precisely accurate? Markets are no more controllable than the phenomenon of climate. By extension, while we have more command over sales results, ultimately it’s only to the extent that we can effectively predict and respond to uncontrollable market dynamics. So, while forecasting is essentially formalized guesswork, a thorough situation analysis combined with institutional knowledge gleaned from colleagues helps you be an “educated psychic” when predicting the market and your organization’s sales.

A sales forecast predicts total anticipated sales and related revenue to your organization by market segment for a specific period of time, typically one year. Typical methodologies for sales forecasts include:

Customer focused approach: This approach considers your association’s actual sales and market share history combined with prevailing market dynamics. Also called “ bottom-up” or “build-up” method. (Recommended)

Ivory tower approach: This approach uses your organization’s objectives rather than market information as a basis. (Least effective, yet most common.)

Rolling forecast: Sales are predicted for the first three months (month 1, month 2, and month 3) and the subsequent three calendar quarters (quarter 2, quarter 3, and quarter 4). At the end of month 3, actual sales results are considered to re-predict quarter 2, in terms of months (month 4, month 5, month 6), and an initial prediction for quarter 5 is made. The advantage is that you can adjust sales forecasts frequently and also retain a 12-month forecast. The disadvantage is that you also need to adjust your budget on a quarterly basis. (Recommended for new product launches.)

Market test: Ask your customers when and how much they plan to buy. While primary market research such as this can be useful, it’s very expensive. Also, consumer product experts say the 20 percent rule applies; that is, for every 100 people who say they will buy only 20 actually do. (Expensive)

Institutional knowledge and experience: You and your colleagues are likely (or should be) close to your customers and familiar with market dynamics. Soliciting opinions of your colleagues, particularly those with tenure, will provide unique insight into your organization and its culture, trends, and capabilities. (Recommended in concert with customer focused approach.)

Find out what metrics your organization currently uses to estimate sales and revenue, and how each department or functional area contributes to the organization’s total financial projection. Share the information you’ve gleaned from your market situation analysis and collaborate to develop forecasts. Engaging your colleagues in this process helps alleviate the common scenario of competing goals or varying market assumptions among internal departments.

With tangible products, Marketing generally prefers greater supply than actual demand to ensure customers are happy. (For example, Administration fulfills customer orders as promptly as possible.) A pessimistic forecast means revenue shortfalls due to a lack of product availability. Lost customers are far more difficult for Marketing to recover. An overly optimistic forecast means cash is tied up in inventory. Finance is pressured to keep COGs (cost of goods) low and directs Administration to minimize inventories. Marketing doesn’t feel the pain when Finance and Administration is squeezed and Finance and Administration doesn’t understand why Marketing can’t forecast accurately.

By collaborating with colleagues you help ensure sales and revenue forecasts are as credible as possible and supported by everyone in the association. Without this agreement from your colleagues, the marketing plan stands little chance of acceptance or adoption by the organization. It’s also important to use a consistent formula to develop forecasts year to year so that the numbers are relevant to each other.

Author of the ASAE best-selling book Smart Marketing for Associations: Marketing Plans That Work, M. Michelle Poskaitis’ expertise includes marketing planning, positioning, messaging and content development. A contributing writer and editor for association trade press, Michelle is CEO of Originations Marketing LLC and past chair of the ASAE Marketing Section Council. Contact: mmp@originations.net

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