The art & science of forecasting (Part II)
Sales Forecasting Techniques for a Retail Brand (and not just for stores!)
The tl;dr
Forecasting is hard these days: COVID, the economy, and changing consumer behavior have muddied the waters more now than ever
A variety of forecast methods exist, but for every strength a model might have, there are just as many weaknesses
The key is to use multiple models, each of which covers the blindspot of another, to ensure maximum “perspective coverage”
Measuring models’ historical accuracies is critical to ensuring the models actually work and, equally importantly, determining which ones don’t
Model accuracy can change over time, and these changes could be an indication that something in your business is changing
Be aware of the difference between accuracy and precision; an inaccurate model may still be incredibly useful if it’s still precise, and vice versa
Forecasting is hard (especially these days)
In a previous newsletter I detailed how I approach a new store’s sales forecast using a variety of methods, which ultimately are placed side by side as a “football field”:
For the purposes of business case development, the goal was to predict a new business unit’s first year sales; the monthly distribution of sales was not important, much like monthly sales forecasting for a business doesn’t always need to get into the minutia of daily sales.
Forecasting a single store is hard enough, but forecasting an entire business is more complex — especially with the world as uncertain as it is these days. But ultimately finance teams still need to have a perspective of where sales are headed and why.
While this deep dive into monthly company sales forecasting isn’t specific to stores, many of the principles can be applied to store sales forecasting too.
There are a number of ways you can and should be forecasting your business
Here are a few of the forecasting methodologies I’ve previously used, each of which can be applied to varying degrees to your total business OR individual channels:
ADS: when promotionality is a key growth driver
KPI Build: when you want to consider a little bit of everything
Time Series: when your business is somewhat consistent across its sales units
Capacity/Productivity: when lead generation/management is key growth driver
Wisdom of the Crowd: when you want to incorporate everyone’s perspectives
Read the deep dives and download the template below:
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