In this video, learn how the top down approach can give you a good reality check on what your sales potential really is.
- Sales forecasting is betting on what customers will or will not do during a certain time period, so it makes a lot of sense to take a customer-centric approach to forecasting. That means looking at two things: what you know about your customers, and what your customers know about themselves. Let's start with the first one. When analyzing any market, you want to group customers into four types. First are the customers that already buy from you.
In fact, not only do they buy from you, they buy exclusively from you, and never a competitor. The second group is similar to the first group, in that they currently buy your products and services. The difference is, these customers also buy products from your competitors. Why? Well, that's because that for some categories of products, customers want choices. For example, the clothing market. That's a great example because you're almost certainly wearing clothes from many different manufacturers.
The market for food is another example. The third group of customers are those that buy solely from your competitors and never from you. Well, at least not yet. And finally, the fourth group of customers are those that don't buy your type of product from anyone. They're called non-category users. These potential customers are very important because acquiring them gives you a new source of revenue. Instead of just taking market share from a competitor, getting these customers helps you increase the overall size of the market.
Now, you need to estimate the potential number of customers that you might be able to capture for each of these four types. First, you estimate the total number of customers for each type. Then you make assumptions of what percentage you can convert to your brand. In forecasting, we call this a top-down approach to forecast. Look at the aggregate customers at a high level and then boil it down to what you think you can capture of each.
The second customer-centric approach to forecasting is simple: ask your customers what they expect to order from you in the coming time period. Now it depends on your industry, of course, but you'd be surprised at how much customers are able and willing to tell you about their spending expectations for the coming year. Why would they bother? Well, perhaps you can make it worth their while. Give them a volume discount, or other incentive, for providing you with their intentions.
Hey, even if it's not 100% accurate, it's still good information. Forecasting is all about managing the error. And customers can do a lot to help you. But remember, you just have to ask them.
- 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