How Good is Your Forecast?
By Bob Stimolo
Are you forecasting based on future market conditions or past sales performance?
The school market poses a number of challenges to marketers, but one of the most daunting is the ability to forecast sales with consistency. Many factors can influence how and when schools will spend their money. Changes in federal education policy, state and local politics, extreme weather, and relations between teachers and administrators can speed up, slow down or even shut down school spending.
Sometimes we can anticipate the change in spending patterns, but more often we cannot. We may know that a major education policy change is coming but exactly how it will impact sales is difficult to predict. Events like major winter blizzards that close numerous schools for several days can have a devastating effect on the success of major promotions that can’t be pulled back.
Past Sales Performance
SMRI has been conducting a quarterly survey of school marketers for some years now. The survey tabulates school market sales in a number of subsets. There are industry subsets of data for school supply companies, furniture companies, and publishers. And there are subsets of data for market segments - early childhood, elementary schools, middle and junior high schools, and senior high schools.
Virtually all privately held companies are reluctant to share their sales data. Consequently, our survey only asks about anticipated and actual changes in sales as expressed in percentages. For example, a typical question might be “what percent change in sales are you forecasting for the next quarter?” Or “what percent change in sales are you forecasting for this full year?”
I thought it might be interesting to look at how well our industry has been able to forecast quarterly and full year sales. The results are summarized in the chart shown here. They show that in 2017, the actual sales for the first quarter were just under 20% less than the forecast. Actual sales for the second quarter was only about half of what the sales forecast was for the second quarter. Actual sales in the third quarter were almost 30% higher than the forecast. And actual sales for the fourth quarter were greater than the forecast by almost 50%. As a group, we were bullish in our sales forecasts for Q1 and Q2 (when actual sales were below those forecast) and bearish in our sales forecasts for Q3 and Q4 (when actual sales were well above those forecast).
A look into some of the subsets of our industry may shed some light. Publishers had reported 12% sales growth in 2015 and 8% growth in 2016. It would be difficult to accept a forecast below that in 2017. Furniture companies had a similar experience with 10% growth in 2015 and 7% growth in 2016. School supply companies on the other hand had been through a difficult time with just 2% growth in 2015 and -1% sales in 2016. For school supply companies a zero growth forecast for 2017 could make sense.
Future Market Conditions
Often we rely on past sales to forecast future sales, but I’m not sure this makes sense. I like to look at what’s happening in the marketplace that might influence the coming year’s sales. The Projections of Education Statistics is a 10 year projection published by the National Center for Education Statistics (NCES). In the current edition of Projections to 2025, there was no growth projected for enrollments in any sector of PreK-12 education from 2015 through 2018.
The forecast for total education expenditures in constant dollars was +2% for 2015, +2.3% for 2016, +1% for 2017, and +2.1% for 2018. The most encouraging projection was for teacher new hires at +1.9% for 2015, -9% for 2016, +4% for 2017, and +7.8% for 2018. Other than new teacher hires, NCES Projections do not provide a solid basis upon which to forecast anything other than modest sales growth.
This past year, with the help of MDR (Market Data Retrieval, www.schooldata.com), SMRI conducted a survey of school secretaries. One of the most significant observations from the results of the survey was the commitment districts and schools have made to technology and their intentions to increase spending in this area in the coming school year.
Based on the available data from our surveys and the NCES Projections, the education market for the foreseeable future should show modest growth with a larger portion of education budgets being committed to technology related products and services. It does not appear that we can anticipate significant sales growth as a result of growth in the market of either enrollments or education budgets. It looks as if the only way we can justify forecasting significant sales growth is through product development and improvements in sales and marketing strategies.