Sales forecasting is an important part of innovation. In fact I believe that every idea in the pipeline should have a value associated with it. Some sort of prediction of how much impact that idea will have if it ships. Having project leaders calculating sales forecast helps innovation leaders, such as yourself, plan for the future.
Recently I’ve been working on forecasting 5 years of sales for innovations. Here are 3 things I’ve learned that I think would be helpful as you think about the ideas in your innovation pipeline.
1. Variance Matters - All the inputs to a forecast have variance. I like to model this variance and report the effect in the sales forecast. It is no surprise that inputs with more uncertainty yield forecast with more uncertainty. What I learned is just how much that uncertainty grows from year to year. Good news is that while year 5 had a lot of variance, there is plenty of time to fine tune the inputs and reduce that variance.2. Stop Overspending on Marketing in Year One - Many project teams go big on marketing support in the first year. Perhaps that is to hit a sales goal or it is influenced by another part of the system, but regardless of the reason sales quickly drop in the following years. The longer term strategy would be to start small and leverage word of mouth to gain awareness rather than purchasing awareness.
3. Meaningful Unique Innovations Sell More, Much More - When an offering is meaningfully unique a domino effect happens:
- more customers purchase
- customers are willing to pay more (first purchase and repeat revenue)
- customers tell other customers (word of mouth)
- the offering stays in the market longer
- higher repeat rate
If greed is a motivator in your organization then 5 year sales forecasting is a good way to accelerate the more meaningfully unique ideas.