Actionable Marketing 101
For many companies, the end of summer signals the beginning of the corporate budget season. Since sales drives profitability, revenue forecasting is a critical part of producing an accurate budget. Many marketers regard the sales forecast element in budgeting to be the bean counters’ responsibility. Think again.
Since these forecasts are likely to become your marketing sales goals, get involved in the budgeting process. While the timing and success of promotions may vary from plan, attracting management attention, the greater challenge marketers face is management pressure to budget overly aggressive sales targets without historic basis or regard for uncontrollable outside factors, such as changes in technology, competitors’ strategies or market demand.
Developing a revenue forecast based on a solid foundation allows you to make explicit your product’s, brand’s and/or company’s revenue dynamics and plan more effective marketing. Consider the environment in which you operate as well as related factors that could affect your ability to attract customers and complete transactions.
8 Steps to create your budget’s revenue forecast
To help you think more strategically about your business and, with luck, uncover new opportunities, here are eight easy steps to build your revenue forecast. (If possible, keep a few promotions in reserve to overcome unforeseen budget hurdles):
- Develop a run rate from which to estimate sales. A run rate is a simplified calculation to project sales through the end of the period. Use this as a base for your forecast which you improve by making appropriate adjustments. Divide current year-to-date sales by the number of sales periods to date. Multiply this result by the number of remaining sales periods and add it to your year-to-date sales:
- Run rate = Total revenues to-date / # of sales periods to-date
- Projected annual sales = Total revenue to-date + (Run rate x Remaining # of sales periods)
To spread the run rate over a year, use actual performance to date and spread the projected remaining sales based on prior year’s actual results for those months:
- Projected month’s sales = (Year-ago month actual sales / Prior year remaining sales) x Run rate x Remaining # of sales periods
- Track historical trends. Examine prior history as an indicator of future trends. Assess how your product, brand and/or firm, and the market have changed. As a basis for your initial projection, analyze the following key factors:
- Customers. How many customers did you acquire? How long did it take to acquire them from first visit through actual purchase? Did customers purchase more than once, or were they only testing your products? Can you convert one-time buyers into loyal customers? Did some segments purchase differently than the rest? How should they be promoted going forward? How well were customers retained? Did they keep purchasing? Should you stop marketing to any segments? Did fans support your purchase process?
- Product. Has your product array changed? Have related products and/or services been added? Will outside factors such as competition or regulation have an impact on your offering? Which products have been sold, in what combination, and how many?
- Price. How is your product priced compared to similar products and close substitutes? Were incentives needed to induce purchase? How did this affect anticipated pricing? Were prices affected by outside factors For example, Apple’s introduction of the iPad forced Amazon to cut prices for the Kindle.
- Place. Which distribution channels work best for your offering? Are any changes in the pipeline?
- Establish seasonality, the recurring factors that influence sales cycles. These events may be driven by external factors such as holidays, or by internal business factors such as planned promotions, product changes or sales quota periods. Determine which distribution channels are optimal for each season.
- Include projectable market-moving events that influence sales. Market-moving events may be public, such as mid-term elections, or more industry-specific ones, such as the iPad’s introduction. Maximize these events to preserve/drive sales. Forecast and document the sales increase they generate since they may not be repeated next year.
- Modify sales forecast for anticipated market trends and changes affecting revenue projections. Among the factors to consider include:
- Market growth rate. Has overall demand for your product changed or shifted in where or how the product is purchased?
- Consumer behavior. Has customer behavior regarding your product or market changed?
- New trends. Are there trends on the horizon that will affect your customers or sales? It’s important to think broadly.
- Monitor competitors’ activities to anticipate what they’ll do. Shop the competition to experience its customer process. Observe each aspect, from product presentation to ease of purchase to packaging. Assess how these factors may affect your customers and business. Since outsiders can cause a paradigm shift, use a broad definition of competition to avoid missing a major change in your marketplace.
- Add your firm’s strategic business plans to revenue forecast. Add specifics to your marketing strategy and translate it into tactics with realistic time frames. Consider the following factors:
- Product. Are any aspects of your product offering changing? Do you regularly liquidate excess inventory?
- Customers. Are there target markets or customer segments with high growth potential? Do they require different marketing or other treatment?
- Price. Are prices changing? At a minimum, consider inflation.
- Promotion. Are new promotions planned? Are existing promotions fatiguing?
- Marketing spend. What size and type of marketing is needed to achieve your revenue forecast? Are advertising formats changing? Remember marketing returns diminish over time as a particular type of campaign gets used repeatedly.
- Adjust pricing and promotions. Use information gathered in steps four through seven to create a comprehensive, realistic revenue forecast. To combat unexpected events that may hinder your ability to meet revenue goals, ensure that every aspect of each promotion delivers maximum results throughout the year.
Of course, revenue is only part of the budget story. Expenses, margins and capital investments also count. But, remember that without revenue, there’s no business!
What challenges do you face with your revenue forecasting? Please use the comments section to respond.
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