Three Arrows You Need In Your Forecasting Quiver
Creating a forecast can be a daunting task, particularly when the activity that you are planning spans several different markets and activity types. Here are three essentials to equip yourself with when faced with the challenge of forecasting.
Performance Data: Old & New
Performance data is a great foundation upon which to start building your forecast. From it, you can develop an understanding of how seasonality dictates performance trends for your client, identify areas for growth and establish a view of high and low opportunity periods.
However, when making observations from historic data, it is important to understand what has driven the changes seen. Ask yourself questions such as:
- Is the competitive landscape the same?
- Were there any sudden cuts in budget last year?
- What tests were run?
Always cross-reference historic data with current trends to put performance shifts into context. For example, comparing pre and post restructure performance may result in unsustainable YoY efficiency gains if the initial rate of improvement is applied moving forward.
Access to your client’s trade calendar is a valuable asset. The trade calendar will enable you to align your forecast with the business’ plans, ensuring that sufficient budget is allocated to key periods. It will ensure influences on performance are factored into your plans such as market expansion or new product launches.
To build on the above, cross-referencing any strategic activity in the trade calendar with your historic data will help insure against unrealistic targets and expectations. For example, month 5 of your historic data may have benefited from a surge in conversion rate owing to a promotion that is not planned for the coming year.
Finally, the trade calendar will provide you with a holistic view of all strategic activity. It will detail any external influences on your channel (such as a TV commercial or new store launch) that you should account for in your forecast.
A Good Template
Creating a template will lift a lot of the burden from your shoulders. Having a clear and dynamic way of organising the data and information you have collected will make the process of planning budget and performance far less intimidating. Some things to consider are:
Work granularly – even if you only plan to share top-line figures and metrics, building your forecast from the bottom up will establish a solid foundation reflective of the unique characteristics of each component. It will also enable you to account more easily for manipulations that may be necessary if additional scenarios are required later down the line. Factor in all metrics, markets and activity types and roll this up into a central view using formulae.
Make it visual – this is important for making sense of your projections. It is much easier to spot an anomalous peak in a line or bar chart than it is in a huge table of numbers, particularly if you are forecasting down to day or week level. Having dynamic charts that correspond to the trends that you are mapping out is a good way to ensure your forecast is realistic.
It goes without saying that the specifics of every forecast will vary, dictated by business objectives and unique KPIs. However, referring to three elements above will support forecast creation of all shapes and sizes.