10.1 Basic Forecasting Method
Last year’s sales can be a good starting point for this year’s forecasts. For example, if the segment growth rate for the upcoming year is 9.2%, you can say, “All things being equal, we can expect to sell 9.2% more units this year than last year.”
Assume next year’s growth rate for Traditional is 9.2% and your Traditional product sold 1,100,000 units last year without stocking out (running out of inventory):
1,100,000 x 0.092 = 101,200
Adding 101,200 to last year’s sales of 1,100,000 units gives you a starting forecast for the upcoming year of 1,201,200 units.
The statistic boxes on the Segment Analysis reports (pages 5 – 9 of the Courier) publish last year’s Industry Unit Demand and the Growth Rate for the upcoming year. Multiplying last year’s demand by the Growth Rate then adding the result to last year’s demand will determine this year’s demand.
If your product stocked out, calculate what it could have sold by multiplying the segment demand by the potential sales percentage reported on page 10 of the Courier, the Market Share Report. Next, multiply that by the segment growth rate.
Is this number valid? It is highly unlikely that the market in the upcoming year will be identical to the previous year. Prices will adjust, revision projects will complete– the playing field will change. Still, this number can be a good beginning as you assess your product offer and speculate what your competitors will offer.
Keep in mind the possibility that your products sold because competitors who otherwise would have made sales under produced and stocked out. Page 10 of the Courier displays actual and potential sales as a percentage for each product. If your actual sales far exceeded your potential because your competitors under produced, you cannot count on them making the same mistake again.
Any new products about to come to market must have a plant. Plant purchases are reported on the Production Analysis (Courier, page 4).