Make Your Sales Forecasts More Than Fortune-Telling
by Brian Jud
Have you ever listened to a forecaster’s prediction of pleasant weather, made plans accordingly, and then been dismayed when it rained? That is the nature of a forecast—it is simply a best guess at what might happen in the future. The point for publishers is that we should think of forecasts not as absolute predictions of the future but as guides to taking meaningful action in the present that will affect the future.
As we approach the end of 2007, this is a good time to begin analyzing what worked and what didn’t work this past year, and to use that data to forecast dollar and unit sales for 2008. (Publishers of first books would be wise to delay forecasting until they have a body of experience to draw upon; similarly, publishers who are starting new lines and/or entering new markets may want to amass experience with them before attempting forecasts for them.)
A sales forecast is an estimate of the level of sales during some future time period. But it is also a tool for monitoring your company’s health, since the process of forecasting analyzes past sales—the lifeblood of your business—to set a goal. This process can yield many benefits, including:
Stronger motivation. Having an objective to shoot at impels you to find creative ways to sell more books.
Better budgeting. A forecast gives you numbers and times for potential revenues, as well as advance notice of when certain expenses (for such things as reprints and promotion) may be incurred.
Help with financing. If you seek a loan to grow your business, the lender will want to see your projections.
More control. Accurately forecasting your sales can help you avoid cash-flow problems and manage your production, staff, and financing needs more effectively. Armed with forecasts, you can rapidly identify problems and opportunities—and do something about them.
Improved inventory management. See the trendline below for an example of how analyzing past sales can help you determine when and how many books to print.
Longer perspective. Forecasts are often conducted not only for the coming year, but for the years that will follow. Generally, forecasters work with three different time frames:
Short-range forecasts are for one year and useful for making short-term decisions about marketing, scheduling, inventory, and staffing. As a rule, they should be conducted monthly for the upcoming year.
Intermediate forecasts cover a span of one to two years. They are used for budgeting, cost control, testing, distribution planning, and introducing and marketing new titles to new markets. They are generally conducted each quarter.
Long-range forecasts, usually conducted once a year, cover more than two years and can help you decide which new titles to develop and whether to expand or create new facilities and arrange long-term financing.
Better understanding of your titles, customers and markets. Since the first step in predicting the future is analyzing what happened in the past, you will acquire useful knowledge of what recently happened, why, when, and to whom.
How to Forecast Sales
There are several ways to forecast sales, utilizing various combinations of history, logic, and intuition. All begin by accumulating information from past sales, test marketing, and/or informal market research.
To evaluate what has already happened, see my article “Mid-Year Marketing Measurement,” which appeared in the June PMA Independent and is available at www.pma-online.org. Once you have determined how close you came to last period’s forecast—and understood why you didn’t meet it, if that was the case—use one of the methods outlined below to calculate a best, worst, and most likely forecast for next period.
Plan all the marketing activities you expect to conduct in the future, and then calculate the possible sales that may result from each. For example, a direct-marketing campaign might yield sales of 500 books; entering a new market could add another 1,000 units; and a price decrease could stimulate another 200 sales. The sum of these figures would determine your forecast.
Use last year’s sales as a base and add a percentage, drawing on a chart of historical sales to aid your intuition and making sure you take account of sales patterns. Your base should not be a simple 100 copies a month for a title that sold 1,200 copies in 2007 if a trendline like the one in the chart represents those sales, with more units sold during the gift-buying periods in June and the fourth quarter, and returns taking their toll in July and (from fourth-quarter 2006) January.
Forecast intuitively. Two maxims are popular among intuitive forecasters. The first is, Look back twice as far as you look forward. And the second is, History doesn’t repeat itself, but sometimes it echoes. In other words, consult the past for advice on what to do in the future and seek similarities to past events, but don’t expect exact duplications.
Think of forecasting as a routine tune-up that keeps your business engine running smoothly. Instead of fixing a number as your target, design a possible range of future sales. Although forecasting is neither an exact science nor fortune-telling, if used properly it may well be fortune-producing.
Brian Jud hosts Book Central Station, where you can find rated lists of suppliers to help you write, publish, and market your books, and also post your own reviews and add your favorite suppliers. For a free trial, go to www.bookcentralstation.com/trial.asp. To contact Brian: P. O. Box 715, Avon, CT 06001; 800/562-4357; HYPERLINK “mailto:firstname.lastname@example.org” email@example.com; www.bookmarketing.com.