Your sales forecasting approach needs to align with your company's marketing plan in terms of how you define the categories you compete in. As you watch this video, consider how defining your market category can dramatically impact your sales potential.
- Your sales forecasting approach needs to align with your company's marketing plan. So first off, you need to define your market category. So what is a market category? Well, it's the space you compete in. For the category, you can define that space very large or you can define it very small and much more focused. For example, let's assume you manufacture a line of products for cleaning teeth.
You could define your category at the very broad level of oral health. Well this suggests that you offer all types of products, such as tooth brushes, tooth paste, dental floss, teeth whitening... well and anything else related to your mouth. When you define the category this way, two things happen. First, you give yourself a very big market opportunity space by addressing a lot of specific needs with a wide variety of products.
But guess what? That definition also means you face a wide range of competitors fighting for the same customers. Second, and at the other end of the spectrum, you could define your category more narrowly. Perhaps to the specific level of say teeth whitening. This narrow scope means you're going after a smaller market opportunity, but with much more focus and less competition. So it's a balancing act between the size of the sales opportunity versus the stiffness of the competition you face.
Well that's why for sales forecasting, I recommend you get together with your marketing counterparts to understand how they define various categories you compete in. Next, for each category, you should understand the trends that are happening within it. There are only three possibilities. Sales are growing, sales are declining, or sales are flat. Makes it easy, right? Well, not quite. It's not enough to know the direction of the trend.
You should also try to understand the reasons why. This will help you produce a more accurate sales forecast. For example, imagine sales in your category are growing. Now that's a good thing, but don't me wrong. You'd better understand the reasons why so you don't get overconfident. Sales might be trending up because of a recent fad. A fad that will disappear eventually. Or perhaps customers or distributors are stocking up on products causing a temporary bump in sales.
Could pricing be affecting the uptick in sales? You need to find out. You don't want to make a bad call with sales forecasting because you counted on an upward trend that just isn't sustainable. Good sales forecasting happens when the forecaster knows the market space and the real reasons driving changes in that space.
- Understanding the sales forecasting process
- Defining your market category
- Understanding market dynamics
- Selecting a forecasting technique
- Using quantitative forecasting
- Understand moving averages
- Using qualitative forecasting
- Using estimates from customers, sales reps, and distributors
- Using a panel of experts