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Prep for the Holidays: Tackling the Dreaded Forecast

Forecasting. Some account managers love it, some hate it. Others believe it should be owned by an analytics team.

For the record, dear reader, I LOVE forecasting. Judge me as you see fit.

Regardless of your position on the matter, a Q4 forecast is essential to building a solid holiday plan. It sets your client’s expectations, helps you determine which tactics are affordable, and makes pitching new testing opportunities easier.

The question I get asked the most from newer AM’s is where to even begin formulating a Q4 forecast. Simple: ask your client what their goal or budget is. Knowing your bounds, spend and/or revenue, are key. For example, which question does your forecast need to support

  • Do they want to achieve 20% YoY Q4 growth?
  • Do they have $250,000 to spend in Q4?
  • Do they want 30% YoY growth AND only have a $500,000 budget?

On occasion, you won’t get a specific budget or revenue guideline from the client, they want YOU to tell them how much to spend and what revenue to expect. Sounds daunting, but it’s doable using the same process as forecasting with known bounds.


Top Down, Bottom Up – Where’s the Middle Ground?

When teaching new Account Managers forecasting, I like to start with the basics. There are two main schools of forecasting approaches: Top Down and Bottom Up. Top Down means starting with the highest-level goal, e.g.. 20% YoY growth, and then divvying down into contributions by channel and the budget needed to support such growth. Bottom Up, you start at the individual channel levels, which then combine to reach your overarching goal.

My preferred forecasting process blends the two approaches together to avoid some of the common pitfalls associated with each method. Miscalculations become magnified, forecasts can quickly become over-complex (Bottom Up), or produce unrealistic goals for each marketing channel (Top Down).

I lean more towards Bottom Up in my approach as it pulls in more historical data and channel nuance, which I find absent in Top Down approaches. This leads me to my usual method:

Hybrid Approach: Determine each channel’s performance potential based on the client goal/spend + historical data. Then layer in site trends to reverse engineer into specific monthly site and channel goals.


What You Need

As with everything we do, your forecast needs to be based in data. Two years of data is a good groundwork to identify trends and outliers, as well as solidify the inevitable assumptions/constants that fall into the forecasting computations. Questions I like to ask when looking at historical data include:

  • What is my current year to date (YTD) growth rate versus last year’s (LY)?
  • How much did I spend in Q4 last year and the year prior?
    • – If there was a big change, how did that change channel allocations and results?
  • Were there any unexpected spikes or dips caused by tracking issues, larger site issues, etc.?
  • What metrics were consistent YoY, are they similar to the last 3 months trending?
    • – For me this is usually average order value (AOV), cost per clicks (CPC), and click through rate (CTR)
  • How did peak day performance change YoY?
    • – Did Black Friday sales hit earlier last year? Why?
    • – When did peak offers ‘leak’ or hit the site?
    • – Do I know if competitors’ offers were more or less competitive than mine LY?

This list isn’t exhaustive, but should provide a decent starting point for knowing if your upcoming holiday season has the potential to be strong or weak versus the prior years and if a revenue/growth goal is attainable. For example, is your site trending at 15% growth in 2017 and your goal is 20% growth in Q4? Might be difficult. But what if LY Q4 2016 grew at 30% YoY while the rest of the same year was pacing at 10% growth. You seem to have a pretty good chance of hitting a 20% growth in 2017 Q4, if Q4 2016 grew at 20 percentage points higher versus the rest of the year.

Historical data makes forecasts more informed.

Even better, some of the questions around specific peak day results may spark fresh strategies and tactics for the next 3 months.

Constant Rate Variables

Next, choose your constant variables. These should NOT be the same for all your marketing channels and should NOT be the site averages. This is where we bring in the individual channel nuance found in a Bottom Up approach. Using rate metrics as constants is better than hard numbers. Additionally, if a marketing channel has an ROI or CPA goal from the client, you would fold that in here as well.

One word of caution, try not to use more than four constants per channel. Any more than that and your forecast runs the risk of not being based in reality. Perfect world scenarios don’t help anyone.


Percent of Site Contribution

My favorite place to start a forecast uses each channel’s percent of site contribution for revenue. This is where we bring in elements of a Top Down forecasting approach to our process.


Using the last two years of data, how much revenue does each channel make up of the total?; e.g. 25% of revenue is Email, 18% is PPC, 16% is Affiliate, 15% is Organic, 13% is Direct, 8% is Display (Remarketing + Prospecting), 5% is Social. Compare the last two years of contribution breakouts against the most recent three months to ensure they are on par with current channel trends. Expect minor variations, which could be a few percentage points up or down.

Similarly, look at how each of the months in Q4 make up the whole. October drives 15% of revenue, while November and December drive 45% and 35%, respectively.

At this point you have all the necessary inputs to begin formulating your forecast.


Numbers Numbers, Math Math Math


Step 1: Begin by forecasting the Q4 total revenue and spend for the marketing channels using the channel % of site contribution and KPI constants.

Determining the overall revenue goals per channel.

Click to enlarge
Backing into spend per channel using the revenue goals and constants.


Step 2: Ensure that total spend equals your client’s set budget. Only applicable if you have a known budget bound.

Confirming calculated budget is within client’s specified budget.


Step 3: Break down the Q4 site revenue goal into monthly goals based on each month’s % of site revenue contribution.

Use the previous year’s monthly contributions to allocate the site revenue goals by month.

Step 4: Layer in monthly channel revenue goals using the results from Step 1 combined with monthly breakdowns and seasonality trends from historical data.

Click to enlargeCheck to ensure the totals match budget and goals.


Step 5: Make sure the total revenue and spend equal budget/goals.

Check to ensure the totals match budget and goals.


Tracking Forecast Success & Accuracy

You’ll want to know how well the site, marketing channels, etc. are trending to your forecast. I recommend implementing a monthly tracker, updated daily, so you know the budget pacing and revenue trend. The best thing is to have all your data in a simple view to make recapping holiday in January a breeze. Click below to download a template I use for yearly forecasts. It can be manipulated to suit many client and forecast needs: full year, Q4, and so on.

Download the Forecast Tracking template

Tracking is also important because you may need to re-forecast or shift revenue projections and budget between months depending on last minute promo changes from the client, unexpected issues like the site crashing on Black Friday, or their Email Service Provider getting caught in a SPAM trap on Cyber Monday, increased competition in the search space driving CPCs up and organic rankings down. I could go on, but you get the point.

Life happens, forecasts aren’t perfect. But they can be thoughtfully put together.

My parting tip: the best time to get started on a forecast is September for holiday and November/December for the lengthy full year forecasts. So go download that template and get started!

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