May 01, 2009

Multichannel Forensics: Sales Forecast

One of the most simple yet important elements of any Multichannel Forensics project is the five year sales forecast. Our job is to help the Executive team (the "C-Suite", for those of you predisposed to the language of the day) understand what happens to the future trajectory of the business.

This is done by evaluating probabilities. Let's keep things simple, looking at just the twelve month file.

Say we have 100,000 customers who purchased during 2007. In 2008, 50% of these customers purchased again, spending $300 each.
  • Sales = 100,000 * 0.50 * $300 = $15,000,000.
Now your marketing department stops by ... they want to implement some sort of loyalty program. They believe that sales to your twelve month file will increase by 10%.

Often, 70% of the benefit of a program is in the retention rate ... while 30% is in spend per repurchaser. Your mileage may vary, but this is sort of an average that you can use to track performance.

Here's what you can expect.
  • Sales = 100,000 * (0.50 * 1.07) * ($300 * 1.03) = $165.
Most important, however, is that you now have 53,500 customers purchasing, instead of the 50,000 customers purchasing in the first example. The additional 3,500 customers provide "long-term value" that is not typically captured in the evaluation of marketing programs.

The impact of the 3,500 customers are multiplied out over the course of five years, yielding a "truer" level of impact on the business.

As an example, download this three-channel spreadsheet, a spreadsheet I generate for the majority of my Multichannel Forensics clients. You'll get to see the long-term impact of short-term changes in strategy.