Start Lowering Your Variance Now
If you’re in charge of forecasting sales for new products, we know it can be tough. If you’re trying to run a bunch of formulas through spreadsheets, we know it can be even tougher — especially when there’s no historical sales to go by!
So for you, we’ve put together this list of four quick forecasting methods our software uses to get the job done, cheers!
1. Forecast by Average
Forecasting sales by average works just like it sounds. It calculates the average sales per week over some period. When you have low volume products or historical sales greater than 3 months, using average sales can be effective.
Forecasting by average sales is the most popular method in spreadsheet forecasting because it’s easy, but it can create real problems as it normalizes out the peaks and valleys of sales trends over time, and increases the risk of out-of-stocks, back orders, and close-to-code write-off scenarios.
2. Forecast by Trend
Sales forecasting by trend is best used when forecasting for a mature brand that’s been in the market awhile. These products tend to consistently turn into your warehouse, and have some historical sales data associated with them.
Because of the built up data, forecasting by trend calculates future sales based on past trends. Including variables like historical discounts during a certain period last year, this method hones your sales forecasting in and gives you insight to make future ordering decisions like never before.
3. Forecast by Model
Forecasting sales by model empowers you to use the trends from a similar product that was sold in the past to predict the new product’s sales. In other words, when you get that new winter lager in this year, you can look at a winter lager from last year and the forecast will assume similar sales over the forecasted period. Think of it this way:
The retailers that purchased last year’s winter lager will probably buy it this year, and probably sell it at a similar rate. Cool, huh?
This is a great method for forecasting when you have a new SKU or seasonal product.
4. Forecast by Last Year’s Sales
This method works best for returning seasonal items. It’s a simple, but highly
valuable concept, because it has all of the previous year’s daily/weekly trends already built into the forecast.
If you think sales will increase 5% this year, the sales forecasting tool lets you easily add or subtract percentages from the previous year. This gives you an easy way to control the forecasted sales for this year based on you confidence in that product this year.
Keeping Your Variance Low
Using these 4 methods to forecast from here on will make you more consistent, and give you better control. The market will continue to change, so studying your forecasted versus actual sales report is critical.
Selecting the right forecasting model for each supplier orproduct plays a big role in positioning yourself to systematically forecast sales and generate purchase orders without requiring hours of data entry and spreadsheet maintenance.
If you want to read more on how variance affects your sales forecast, you may like our blog entitled How to Know You’re Doing it Right: Sales Forecasting.
If you are here because you’re looking for software solutions, you may like our blog entitled How Scalable is Your Sales Forecast?