By Jill Mazur January 26, 2017.
The holiday sales numbers have already trickled in and a new year is upon us. Were your numbers in line with your expectations? Did you meet or exceed your 2016 forecasts for the year? Did you actually have a forecast for the year? I ask because forecasting is the foundation for every consumer products company. If you have something to sell, you have something to forecast. If you’re a brand new business, forecasting is little more than using a “Magic 8 Ball” to make some sort of guesstimate. If you’ve been in business for longer than a year, you definitely need to look at your numbers and products and make a plan.
Top-Down forecasting starts at the top, of course. Generally, it starts with a financial forecast for the fiscal year. Understanding what it takes to run a business profitably is the key to staying in business. If your sales forecast for the year is $500,000, but your selling, general and administrative (SG&A) costs are higher than that, you’re going to need to sell more product, or make more profit to cover your expenses. Financial forecasting may not be your strong suit, and that’s where your accountant or business consultant can come in handy. You’ll need to review your balance sheet, cash flow and income statement to understand what’s happening in your business. Taking all of these things into consideration will help you understand your financial position, and what you need to plan for the year.
Once you have your financial forecast you can start your sales forecast. Without knowing where you need to be financially, you won’t know how to build your sales forecast. If you know you need to reach 5 million in sales for the year in order to meet your financial forecast, how do you forecast your sales? Look at your past history and business trends to determine what your sales breakdown should look like. Are you trending upward in web sales and downward in brick and mortar sales? Do you have a strategy to open up new markets or introduce new product lines this year? Factor that into your forecast to help figure out where you need to drive sales.
Now look at your product categories and work on your merchandise forecast. Which products have sold well for you in the past and continue to sell well for you? Do you have the opportunity to update those product categories to reinvigorate interest and sales? Which product categories are trending downward or are unprofitable? Can those be phased out or dropped altogether to make room for new, fresh products? What trends are buzzing around the marketplace that make sense for your business to try to capture? What do your sales team and customer have to say about your products? Develop this into your sales plan, but remember to be realistic. If you sold 2.5 million last year, don’t plan to sell 10 million this year. Creating a manageable growth projection for your business allows you to increase your business, fulfill your orders and satisfy your customers. Having unrealistic expectations leaves you, and your business, vulnerable to disappointment and financial hardship.
Finally, you can take your merchandise forecast and break it down into a product forecast. You’ll need to know what you plan to buy or make for a season. If you’re fortunate, your customers will tell you want they want to purchase ahead of your production/purchase schedule. In which case, it makes it easy to figure out your product forecast. If you’re not lucky you’ll have to make educated forecasts by product based upon prior history and input from your sales team and maybe even your customers. Either way, you’ll have to plan well to limit your inventory liability. Getting input from sales and customers is one of the best ways to plan. You may have great ideas for new, innovative, exciting and/or controversial products, but if the people who know your products best reject your potential offerings, do yourself a favor and start over. No one wants to be stuck with unsaleable product. Understanding your gross margins will go a long way in helping you choose which products to produce and sell and which ones to drop.
Most forecasts were meant to be reviewed and revised throughout the year. You’ll want to update your actual data against your projected forecasts and review every quarter. You may need to tweak your sales and merchandise plans as well as your own expectations. Hopefully for the better, but you’ll also be prepared for the worst when you stay on top of your forecasts, and you’ll know how to plan for next year.
Jill Mazur is a Fashion Business, Inc. and independent business consultant to the apparel and footwear industries, based in Los Angeles, California.