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How to Build a Solid Forecast

More on Forecasting

Nov 12, 2018

By Bob Stimolo

Accurate forecasts are important to running a business efficiently.  If your forecast is too high, more money is invested in having products (or services) available to meet the anticipated demand than is necessary, reducing the company’s profitability.  On the other hand, if the forecast is too low, there is not enough product (or service staff) to fulfill orders resulting in delayed shipments, cancelled orders and unhappy customers, again affecting the company’s profitability.  Yet, forecasting can be challenging, especially in the education market.  Here are some thoughts that might make forecasting for your company a little easier.

Predicting the Future

No one in management expects you to predict the future.  However, they do expect you to be aware of your company’s sales history and market conditions.  Therefore, the key to a good forecast lies in doing the research necessary to develop the data that supports your forecast. There are several factors to consider including your sales history, your marketing plan, and current and anticipated market conditions.  Market conditions include changes in enrollments, school staffing, school spending, and federal education policies.

The Advantages of Quarterly Forecasting

Sales history is an important factor because educators spend in relatively predictable patterns.  Weekly, even monthly forecasts are the most difficult to predict because many factors can alter spending over short periods of time including school closures as a result of weather conditions, school holidays, and school breaks.  Quarterly forecasts are more consistent.  You can make a quarterly forecast and hold it for the full thirteen weeks of the quarter.  It should enable you to keep your company running smoothly in spite of the fact that the quarterly forecast may vary from the actuals from week to week

Market Conditions for Consideration

If you are making a change to your marketing plan, each change should have an anticipated impact on sales.  If your marketing plan is essentially the same as the prior year, then changes in sales must come from changes in the marketplace.

Historically, the birth rate has been the most significant factor in forecasting enrollments.  However, in recent years the birth rate has declined.  For example, in 2000 the birth rate was 14.4 per 1,000 of population.  In 2015, the birth rate was 12.4 per 1,000 population.  That is a decline of just under 14%.

According to the Projections of Education Statistics to the Year 2026, the total elementary and secondary school enrollment increased 3% from 2001 to 2014, from 54.0 million to 55.6 million.  The projection for total elementary and secondary school enrollment from 2014 to 2026 is an increase of 2% to 56.8 million spread over 12 years.

Total elementary and secondary teachers increased 4% from 2001 to 2014, from 3.4 million to 3.6 million.  The projection for total elementary and secondary school teachers from 2014 to 2026 is an increase of 6% to 3.8 million, also spread over 12 years.  If you are forecasting an increase in sales, you cannot accrue much of it to an increase in student enrollment or the size of the teacher work force.

Your Fiscal Year vs School Fiscal Years

Most districts and schools have a fiscal year that runs from July 1 to June 30 but most school marketing companies have a fiscal year that runs from January 1 to December 31.  This difference in fiscal years complicates the forecasting process.

Data gathered by School Market Research Institute (SMRI) over the years suggests that many school marketers receive the largest portion of their revenues in their second and third quarters (from April 1 to September 30).  Translate this into the school fiscal year and schools are making their greatest purchases in those quarters that mark the beginning and end of their fiscal year.  This makes sense as school administrators are spending the most when they have a new budget or when they need to bring their budgets to zero at the end of their fiscal year.

This phenomenon is evident from SMRI’s quarterly survey of school supply companies.  Consider the chart shown here, illustrating the change in sales experienced by school supply companies over their last three fiscal years.  The change in sales was identical for each quarter of 2015 and 2017.  In 2016, the changes in sales were within 2% in the first quarter, 1% in the second and third quarters and equal to 2015 and 2017 in the fourth quarter.

 ForecastingChart

Marketing Genius

Now consider your position as a school marketer in making your forecast.  Your most impressive sales growth is most likely to come in your second and third quarters.  Your first and fourth quarters are most likely to be the least impressive.  It is tough to look like a marketing genius given these conditions.

In making your sales forecast, these are some of the factors to reconcile.  There are also new opportunities in the form of new products and existing products translated to a new media.

Identify the key factors that drive your sales.  Then build your sales forecast piece by piece.  Adjust your forecast quarterly instead of weekly.  While sales history is an important indicator of how the year will unfold, it is not in and of itself a predictor of future sales.

You can participate in SMRI’s Quarterly Survey of School Marketers.  Only participants receive the results of the survey.  Simply go to http://www.smriinc.com/survey.html to sign up.  Bob Stimolo is President of School Market Research Institute a full service marketing and research firm.  SMRI provides direct mail and email lists and services exclusively to school marketers.  To learn more go to www.smriinc.com or contact Kathleen Bill at 800-838-3444 x201.