Is Your Marketing Forecast Realistic and Achievable?
Nothing destroys the credibility of a business report faster than inaccurate or wildly optimistic financial forecasts.
I have seen students provide financial forecasts of a product line extension that would generate billions in dollars within a couple of years. And while that may have happened with with some unicorn start-ups, it is unlikely that the average new product would generate such a tremendous return.
Therefore, before you use your financial forecasts in your report and recommendations, here is a checklist of financial considerations – what I call financial reality checks.
Very high brand penetration?
Brand penetration indicates the percentage of the overall target market that will become a regular user of the product. Firms/brands with high ongoing market share could probably expect to have a reasonable level of brand penetration.
However, in most cases, you need to take care about the percentage of consumers you think will quickly gravitate to the new product.
Remember that the product is in a competitive situation and generally most competitors will react to a significant decline in their market share.
Too short a pay-back period?
Other than straightforward product line extensions and product improvements, it is unlikely that most new products would have a pay-back time-frame of less than one year.
Generally 2 to 3 years is the norm – but longer for more significant/expensive new product investments (such as pharmaceuticals).
Over-stated marketing return on investment?
Generally your marketing ROI needs to look reasonable.
For example, if your marketing ROI result is 1,000% then you are almost “spinning straw into gold”.
Experienced business people will realize that it is difficult to generate profits from new products (because the market is so competitive and many new products fail), let alone return 10 times the new product investment in a short period.
High prices AND low unit costs?
Another financial concern I have seen with forecasts from marketing people is that they plan to develop the “leading/best” product in the marketplace.
And because of this superior product quality they believe that they would able to charge premium prices, but still manufacture the product/service at incredibly low cost rate – leading to an overstated unit margin.
It is difficult to produce a truly premium quality product (especially with a new product) while having lower input costs than your competitors – price and cost need to be reflective of each other.
Lack of marketing support for the forecast assumptions
If you have very high percentage in the forecast for awareness, trial, availability, repeat/rebuy, then you will NEED a suitable marketing program that will deliver these marketing targets.
Quite often, I will see high marketing goals for these four components, but with no clear way of how they will be delivered.
Keep in mind, that not every video will go viral – that may happen on occasion – but you should not look to build it into your underlying marketing assumptions and be accountable for it in your marketing deliverables.
KEY TIP: Be realistic and justify your assumptions and use supportive data where ever possible.
Forecasts not based on market research?
I agree – “estimating the forecast” is faster and cheaper way to go, as opposed to expensive and timely market research. But… how important is the forecast?
If this new product represents a big investment, big plans, or a strategic risk – then gather relevant market data, consumer insights, and competitor analysis to inform your forecasts.
You can look back to look forward
One way to strengthen for forecasts is to look at historical data and industry benchmarks for similar products or market segments. Base some of your assumptions on past performance to help estimate realistic sales volumes, pricing, costs, and customer behavior.
What? Make more than one forecast?
Definitely – never have just one. You need to conduct sensitivity analysis by testing different scenarios and assumptions.
Assess the impact of changes in factors such as pricing, market share, costs, and customer behavior. This exercise will help identify potential risks and provide a more balanced view of possible outcomes.
Forecasts are Moving Targets
Forecasts should not be set in stone. Continuously monitor market trends, consumer behavior, and performance indicators.
Update your forecasts periodically to reflect the evolving market dynamics, competitive landscape, and any changes in internal or external factors that may affect the product’s performance.
Using the ATAR Forecast Model is an excellent method of forecasting new product sales and profits. Find Out More About ATAR Forecasts