I know, it’s only May, and while some of us are just now starting to think about life after winter, I’m here to recommend that you start thinking about November.
For many merchants, the holidays can be responsible for generating up to 50% of their total annual sales. It’s a critical time of the year that requires a lot of planning, part of which involves forecasting sales. So here are 5 things you can start doing now to effectively manage your inventory and fulfillment operations this holiday season.
1. Use historical data and factor in trends
This one may seem obvious, but one of the easiest and most effective ways to forecast sales is to look at your historical data across all channels, and then factor in consumer trends.
Let’s look at online sales from last year as an example. ComScore reported that online retail spending was up 15% last year, as compared to the 2010 holiday season. The period analyzed was November 1st through December 31st. For that same period, take a look at your online sales numbers for both 2010 and 2011. How do they compare?
To effectively forecast sales, it’s helpful to compare past trends that your business has experienced, with those experienced by the industry as a whole.
The next thing to do is compare sales data for this year by channel. Let’s say for example that your online sales this year have averaged 10% growth over the same period last year. Unfortunately, though, your brick and mortar retail sales are down 5% for the year. Over the course of the next few months, those trends should continue to be monitored, averaged out, and then factored in to your 2012 holiday sales forecast.
For some businesses, there is no historical data to look at. This could be the case for a startup business, or an established retailer that’s trying to forecast sales for a new product. Even in these cases, however, there are ways to forecast sales. In the case of a retailer offering a new product, compare sales for a similar product, if possible. For startup businesses, take a look at your monthly sales to date, then do research to try to determine how industry sales overall are trending for this year compared to last.
Historical data is extremely helpful when it comes to sales forecasting, but it should not be the only thing you look at. There are other variables to consider, one being marketing and promotional efforts.
2. Consider new promotions and marketing initiatives
Forecasting sales is not the same as forecasting demand. There may be greater consumer demand for your product this year compared with last year, but if those consumers are not aware of your brand and website, you won’t reap the benefits.
When forecasting sales, consider the marketing efforts planned in order to generate increased awareness of your company and products this holiday season. For example, perhaps you will be budgeting more for your pay-per-click (PPC) campaigns, starting in early November. Based on planned budget increases and your average cost-per-click during that time of year, go ahead and forecast the increased amount of website traffic you can expect, and from there, looking at your average conversion rate, you can project increased sales from this marketing medium.
In addition to marketing efforts, consider any promotions you have planned. For instance, perhaps you’ll be offering free shipping for the first time this holiday season. With a free shipping offer, whether it applies to everything or only certain products/orders, the hope is to generate a greater overall conversion rate. The challenge, however, is that you don’t yet know if it’ll work, or by how much, making it difficult to project increased sales from this type of promotion. For this reason, it’s a good idea to test offers and promotions in advance of the holidays in order to help determine the impact relative to sales.
3. Break forecasts down by individual products
This can take some time to do, but the most effective way to forecast sales is to do so by individual products. Not only will this give you the most accurate forecast, it will help with inventory planning, and allow you to tell your suppliers what needs to be produced, and when.
In the case of new products, again, try to compare historical sales of a similar product. If possible, it is also a good idea to market the product in advance of the holidays. That way, you’re able to get a sense of demand, and compare sales of any new products with those of other products for which you do have valuable historical data.
4. Software can help
There is a variety of software and applications available to help merchants with sales forecasting. These forecasting tools look at current and historical sales levels of each product, along with trends, seasonality, the impact of marketing efforts and promotions, and other variables in order to forecast sales throughout the year.
These tools are often included in end-to-end business management software, which connects a variety of systems, including order management software, accounting software, fulfillment software, and customer relations software. For multichannel merchants, these tools are often a necessity in order to streamline the inventory management process, and to effectively communicate with internal departments and external vendors.
5. Review data and adjust
Accurate sales forecasting is not easy, nor does it happen overnight. As a merchant, your objective should be to factor in all relevant variables as best you can, and to become more accurate with each projection. To do so, compare your forecasts with actual sales each month. Try to determine what caused any discrepancies that you see, and then adjust as needed.
It’s also a good idea to include people from multiple departments as you review data and plan for the future. This includes sales, marketing, accounting, purchasing and IT. Doing so will allow for more accurate forecasting as all cross-departmental initiatives are considered, and it will help to make sure everyone’s on the same page.
As you plan for the holiday season and beyond, the important thing to remember is that, if you’re not a statistician, don’t worry! In the end, the best way to forecast sales is an educated guess. The more data you have, and the better able you are to determine what had an impact on that data, the more educated and accurate your guesses will be.