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.