Next Year's Online Sales Forecast

Click on the image to enlarge it.

We keep getting closer the day when we have to have an accurate forecast for online volume for Fiscal 2008, assuming you're on a Jan/Jan or Feb/Feb fiscal calendar.

There's a lot of ways to do forecasting. Simple is always better than complicated.

But it is important, when using simple forecasting techniques, to decompose your forecast into "components".

How much of next year's forecasted increase is planned because of improvements in merchandising strategy?

How much of next year's forecasted increase is planned because of improvements in how merchandise is presented on the website?

How much of next year's forecasted increase is planned because of improvements in the functionality of the website?

How much of next year's forecasted increase is planned because of increases in marketing spend, or more efficient marketing spend?

How much of next year's forecasted increase is planned because of an improved cross-sell / up-sell program?

How much of next year's forecasted increase is planned because of changes in the competitive landscape, or anticipated changes in the economy?

How much of next year's forecasted increase is planned because of the inertia of the business --- in other words, how much of the increase will happen simply because we have more loyal customers than last year?

In the example provided in this post, more than sixty-two percent of the sales increase will happen simply because we have more loyal customers than we had the prior year.

It is important to decompose the elements that contribute to a forecasted increase. At minimum, we need to explain to our Executive Management Team what we believe will cause our business to succeed next year.

I've had first-hand experience with this. At the end of my tenure at Eddie Bauer, back in 1998, customer productivity was decreasing at a fast rate. It was my job as Director of Circulation to provide the sales forecast for 1999.

I produced a forecast that had a sales decrease. That didn't go over well.

I had to find a way to demonstrate why we were plummeting. After all, the merchants told us the product would be better than ever. The creative team reminded me that their presentation was appropriate, aspirational, clean.

Therefore, I was the problem.

By using these methods, I was able to show that the sins of 1998 were causing the potential shortfall of 1999. We didn't have enough loyal customers to fuel the future of the business.

I wasn't popular. But I was able to explain why things were trending where they were trending.

By the way, sales increased in 1999, and we had the most profitable year in the history of the direct division, in part because of the expense management initiated because of the challenging forecast issued in late 1998.