Your Sales Plan is NOT a Forecast!

Man is the only animal that laughs and weeps, for he is the only animal that is struck with the difference between what things are and what they ought to be. – William Hazlitt (1778-1830)

A Ferrari has a steering wheel. A fire truck also has a steering wheel.

A Ferrari has a clutch, brake and accelerator. A fire truck also has a clutch, brake and accelerator.

Most Ferraris are red. Most fire trucks are also red.

A new Ferrari costs several hundred thousand dollars. A new fire truck also costs several hundred thousand dollars.

Ergo, Ferrari = Fire Truck.

That was an absurd leap to make, I know, but no more absurd than using the terms “sales plan” and “sales forecast” interchangeably in a setting. Yes, they are each intended to represent a consensus view of future sales, but that’s pretty much where the similarity ends. They differ significantly with regard to purpose, level of detail and frequency of update.

Purpose

The purpose of the sales plan is to set future goals for the business that are grounded in strategy and (hopefully) realism. Its job is to quantify and articulate the “Why” and with a bit of a light touch on the “What” and the “How”. It’s about predicting what we’re trying to make happen.

The purpose of the operational sales forecast is to subjectively predict future customer behaviour based on observed customer demand to date, augmented with information about known upcoming occurrences – such as near term weather events, planned promotions and assortment changes – that may make customers behave differently. It’s all about the “What” and the “How” and its purpose is to foresee what we think is going to happen based on all available information at any one time.

Level of Detail

The sales plan is an aggregate weekly or monthly view of expected sales for a category of goods in dollars. Factored into the plan are category strategies and assumptions (“we’ll promote this category very heavily in the back half” or “we will expand the assortment by 20% to become more dominant”), but usually lacking in the specific details which will be worked out as the year unfolds.

The operational sales forecast is a detailed projection by item/location/week in units, which is how customers actually demand product. It incorporates all of the specific details that flow out of the sales plan whenever they become available.

Frequency of Update

The sales plan is generally drafted once toward the end of a fiscal year so as to get approval for the strategies that will be employed to drive toward the plan for the upcoming year.

The operational sales forecast is updated and rolled forward at least weekly so as to drive the to respond to what’s expected to happen based on everything that has happened to date up to and including yesterday.

“Reconciling” the Plan and the Forecast

Being more elemental, the operational forecast can be easily converted to dollars and rolled up to the same level at which the sales plan was drafted for easy comparison.

Whenever this is done, it’s not uncommon to see that the rolled up operational forecast does not match the sales plan for any future time period. Nor should it. And based on the differences between them discussed above, how could it?

This should not be panic inducing, rather a call to action:

“According to the sales plan that was drafted months ago, Category X should be booking $10 million in sales over the next 13 weeks.”

“According to the sales forecast that was most recently updated yesterday to include all of the details that are driving customer behaviour for the items in Category X, that ain’t gonna happen.”

Valuable information to have, is it not? Especially since the next 13 weeks are still out there in a future that has yet to transpire.

Clearly assumptions were made when the sales plan was drafted that are not coming to pass. Which assumptions were they and what can we do about them?

While a retailer can’t directly control customer behaviour (wouldn’t that be grand?), they have many weapons in their arsenal to influence it significantly: advertising, pricing, promotions, assortment, cross-selling – the list goes on.

The predicted gap between the plan and the forecast drives tactical action to close the gap:

Maybe it turns out that the tactics you employ will not close the gap completely. Maybe you’re okay with it because the category is expected to track ahead later in the year. Maybe another category will pick up the slack, making the overall plan whole. Or maybe you still don’t like what you’re seeing and need to sharpen your pencil again on your assumptions and tactics.

Good thing your sales plan is separate and distinct from your sales forecast so that you can know about those gaps in advance and actually do something about them.

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