Sales forecasting is no easy task and is one of the most important factors in any online business strategy. The forecast sets a benchmark for marketers to reach and what clients use to measure your success. It helps determine budgets and the allocation of the budget over the month, quarter or year. It’s a process which both the client and the account manager need to work closely together to come up with realistic goals and variables which drive the forecast.
Forecasting involves researching, questioning, clarifying and of course some mathematical skill. There are two types of forecasting, the first is for a brand new business, the second is a for an established business or one that has gone through at least one full annual sales cycle. Forecasting for the second is easier as there is an already established benchmark, forecasting for the first is tougher and what we’ll be covering here.
Researching, Questioning and Clarifying
The first point of any forecast is to try and determine the demand of the product or services in the market as a whole. Asking the client about the market is usually the first step, as they would/should know what the market demand is for their product. If the clients doesn’t know, a simple keyword search through the Google Adwords tool is a good starting guide. Asking the client for keywords related to their product helps you filter and determine the search volume in the keyword tool. When completing a search in the keyword tool, ensure you are using exact match and not broad match as the volume results between the two could vary a lot and affect the forecast substantially.
Once you’ve determined the overall market, the next step is asking the client what percentage of market share they think their business will obtain. Simply throwing out a number is not a good strategy. After a client gives us their market share number, we always ask, “How did you get to that number?”. If there’s no real answer you need to take a step back and really question them on how they plan on obtaining their suggested market share. This is especially important for a brand new business or website as there is no visitor history to work with. Simply throwing up a website doesn’t mean you’re going to get visitors coming to the site. It can be harder than a brick and mortar store in a sense. Launching a brick and mortar store at least gives a customer a physical building they can see and compare to the other ten buildings on the block. Launching a website is like opening your store on a block with millions of other stores. So, the challenge is trying to get your site to stand out on the block to attract visitors. This is accomplished by implementing a number of different marketing channels, SEO (ranking naturally in Google), PPC (paying to get to the top of Google), video marketing, etc. So, by working with your client to determine how they are going to get the traffic “market share” to the website, you can both come up with a realistic traffic “market share” number.
The next step is determining what the expected conversion rate for the site will be. Different verticals have different conversion rates so be sure to chose the most applicable rate for your industry as this is a key variable in your forecast. The conversion rate is the number of transactions / the number of visitors. Like a brick and motor store, if 100 people walk into your store and 2 people purchase something, your conversion rate is 2%. There could be a lot of factors effecting the conversion rate like the smell of the store, the lights, pushing sales people, any sales going on, etc. Your website can have the same affect and it’s very important you try your best to optimize you’re site for the your visitors, as this will affect your conversion rate. Conversion optimization is a very important and key element in any website’s marketing efforts, but is rarely used by most business owners.
The last step is completing some mathematical formulas, here’s a simple demonstration below:
- Client Market Share (100,000) = Overall Market Share (1,000,000) x % of Market Share for Client (10%)
- Number of Transactions (2,000) = Client Market Share (100,000) x Conversion rate (2%)
- Revenue ($200,000) = Number of Transactions (2,000) x Average Order Value ($100)
This is a simple general overview of your overall online sales potential. The forecast can and should be broken down by each marketing channel to help you determine budget allocation, but once again working with the client to gather insight and percentage allocation by channel is key in determining a more realistic sales forecast and benchmark for each channel.