I am hearing the whispers ... "if this Holiday season isn't considerably better than last year, we're going to have to evaluate the viability of our brand."
Owners and CEOs frequently ask me to do a quick sales forecast for the next five years. A file is sent to me (CD/DVD in the mail or a file is posted on an ftp site) with various customer attributes, one row for every item a customer has ever purchased. The columns include things like household_id, order date, item number, merchandise division, quantity, price, demand, disposition (returned, item not shipped, etc.), payment tender, physical channel (phone, mail, web), advertising channel (e-mail, affiliate, search, catalog).
With this information, I look at past purchase behavior, and develop a sales forecast for the next five years. Maybe the following historical trend is representative of your business:
- 2004 = $48 million.
- 2005 = $52 million.
- 2006 = $54 million.
- 2007 = $52 million.
- 2008 = $48 million.
- 2009 = $42 million.
My job is to forecast 2010 - 2014. I'll take a run through the next five years, assuming that all marketing practices in 2010 - 2014 are the same as in 2009:
- 2010 = $39 million.
- 2011 = $37 million.
- 2012 = $36 million.
- 2013 = $35 million.
- 2014 = $34 million.
At this point, the Owner / CEO will ask me what would happen if the economy improved by 10%. I run a simulated forecast, assuming that the economy improves significantly.
- 2010 = $43 million.
- 2011 = $42 million.
- 2012 = $42 million.
- 2013 = $43 million.
- 2014 = $44 million.
We run different scenarios, based on different sets of assumptions.
- "What happens if we cut customer acquisition spend?"
- "What happens if we reduce spend on existing customers?"
- "What happens if we shift offline ad spend online?"
- "What happens if we eliminate eight pages in every catalog?"
- "What happens if we improve homepage conversion by ten percent?"
Based on the assumptions, we iterate toward what we perceive to be a fair "valuation" of the business, based on sales potential and profitability.
CEOs and Owners: You can use the Multichannel Forensics framework to understand what your catalog business might be worth. Ask your analytics team to follow the framework, generating forecasts for you.
I can easily produce the forecasts for you as well, e-mail me for details.
You'll have to admit, having this information is pretty darn important, especially if this Holiday season doesn't turn out as optimistic as one might hope.