I posted here a couple of weeks ago about SMBZen’s useful summary of business forecasting and threatened, at the time, to add some of my thoughts about forecasting as reasonable educated guessing. So with that in mind, I have some tips for forecasting a new product. Hooray for the educated guess.
- You’re not alone. Everybody who starts a new business or develops a new product for an existing business has the problem of forecasting. They say misery loves company, but that’s not business relevant. What is relevant, though, is that nobody whose business relates to startups thinks “But how can I forecast? It’s a new product?” is a valid problem.
- Avoid the tops-up forecast based on a small piece of an enormous market. “This is a $10 billion market and we’re going to get one tenth of one percent of it” just doesn’t cut it.
- Look for hooks and ladders you can use to build a castle of assumptions.
- My favorite example is for a restaurant. You use seats times meals per seat on average for breakfast or lunch or dinner on week days and weekends, and add things up.
- Look for hooks in service businesses too. Calculate growth as clients times average billable hours per month per client, for example. Break the hours into rate hours.
- Another example: trips. Trips per day, week, or month. Times average time or money per trip.
- Percent of capacity should increase over time, but obviously it hits a realistic cap.
- For Web businesses, build up from your marketing tools: page views from organic search, page views from pay per click, allowing for how much you pay per click, how many clicks you get, and a conversion rate of clicks to sales.
And, most important: remember, always, that business forecasting is much more about following with plan vs. actual management than it is about guessing right. Break your forecast of a new product into components so that when you track it you’ll be able to see what’s different from what you expected.
That, by the way, is the seventh of seven tips.