How to build an eCommerce Sales Forecast for your new website

forecast-tools

In this blog post we take a look at how you might build a sales plan for an eCommerce website.

It's often the case that people don't have much more then a vague idea of the sales number they hope to see for any future eCommerce project. Everyone knows they want to grow eCommerce sales, but "How much can I sell in the first year of an eCommerce project?" and  "How do I get a return on my eCommerce investment?" are questions people should be asking before they develop anything new.

This blog posts explains a simplified version of the process we use internally at Genima for checking if eCommerce targets are realistic, More importantly it puts a spreadsheet and a process into your hands so you can do your own eCommerce Planning before you have anything developed.

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How do we go about it?

The bulk of this post is going to be giving you a whirlwind tour of a simplified version of our ecommerce planning tool. The spreadsheet used is available to everyone, simply request it (here) 

It is important to note that the ideal time to be doing this exercise is whilst you are defining your eCommerce strategy, and before you start any development. However if that is not the case, and you have already launched you can still use this process - it may just need careful fine tuning and a good understanding of any potential advantages or issues with your current platform.

Ok, lets assume you have downloaded the spreadsheet (or you are using Google drive!) What do you do next?

Step 1: How to Start

The numbers in the guide initially are generic. They do represent a real and achievable plan (one we have already executed), however they won't be right for your business. This means you will need to go through and make changes. First however ask yourself some questions:

  • Do I have a known budget for this development (or has it already cost a known amount)?
  • What assets and strategy might I use to help launch the website?
  • Do I plan to use PPC, SEO and other elements in my website strategy that have monthly costs?
  • Can I calculate my average product margin and sales value?

Much of this should be known to you - if not make some notes as you go as this should be documented and used in your later strategy.

In simple terms we take a theoretical 'average' product, with a known margin and fulfillment cost. We assume linear growth and sales (the reality won't be like this, but it works for estimating) and we plot the impact of this over a 1 - 5 year period.

This allows us to use some simple building blocks to produce valuable data, such as month to month costs, sales volume and margins.

 

Step 2: Key Data

We are going to assume you are using our spreadsheet here - however if not the principles involved are just as valid! Starting on the overview tab, this is the first area to fill in:

 

Over how many years do you want to forecast?
What is the average sale value for a single product?
What is your average product margin ?
What sales growth rate do you anticipate month on month?
What sales forecast do you have for month one?

'Over how many years do you want to forecast?'

This is probably one of the most important number on the sheet, please use the drop down to set this to between 1 and 5. An website or ecommerce store is an investment that is usually measured over a number of years.

'What is the average sales value of a single product?'
'What is your average product margin?'

We know that in the real world people put multiple products in the basket, you also up-sell and discount shipping at certain values. However if you were to look at a years sales after the event, there would be an average you could calculate.

If in doubt identify the products you think will be (or have been) your 10 bestselling products, and calculate an average price and margin from those. You should have that list anyway to focus on those products for promotions, discounts and special offers - but that's another discussion!

'What sales growth rate do you anticipate month on month?'

You should involve any providers in this discussion - if you are setting these goals before working with providers be sure to have them on the table when discussing what you want them to build or deliver. If you have in house marketing and development sit down to discuss how they can support these goals. 

Make sure you have (or plan for) the marketing, content, PPC and SEO activity to support these aims in both the short, medium and long term.

'What sales forecast do you have for month one?'

This really translates into 'what marketing activity will you be using to launch the site? Do you have an existing customer base to communicate to? What will you be doing to launch with a bang, and to who?

It's really worth thinking about your launch as your start point has a significant impact on your entire eCommerce sales forecast.

Step 3: Costs

Costs. Not everybody like them, but they do happen. If you are looking for a strong initial visitor count with a limited customer base you will probably need some PPC for example. However I digress!

We have split costs into the following camps:

One Off

This might include you initial development, or just your deposit if you pay for monthly services. Branding, Photo's, Strategy, a launch campaign - these are all just ideas of singular costs.  Be sure to change these to reflect your needs.

Annual

Annual costs are as they sound - with the caveat that they repeat for each year you are forecasting for. Some examples might be hosting, support and maintenance, PCI compliance your TLS certificates, be sure to try and trap as much as possible so you get a real reflection of your costs.

Monthly

The pattern is getting pretty easy to spot by now. Include any monthly costs such as maintenance, content creation, PPC, ongoing SEO, as before customise it to suit you.

Product fulfillment

People often miss this one out - but if you are aiming for high product volumes it significant. Will you carry on costs from shipping that you don't charge the customer for? Merchant fees? Product Packaging? Estimating an average fulfillment cost can be pretty important.

Step 4: Review the outcome 

We are now done with form filling at least until we make changes.

Back on the overview tab we can see some new information namely the total's for your development, annual, monthly and fulfillment costs.

The Graph

In addition, the graph should now be meaningful - take note that if you mouse over one of the lines, you can see all the statistics and values for that period.

grapsh-b1

The Data Tab

Once you have had an initial look at this, head over to the Data tab, and you have a world of extra information at your fingertips.

This gives you the monthly sales, product volume, margins and the running (to date) totals for every month, as well as some other data.

Overview Data

Heading back to the Overview tab, you can also see some headline information, calculated from the Data tab:

 

Overview Data  
   
Sales Value over project lifetime? £407,580.00
Product Volume Sold over project lifetime? 20379
Average Monthly Revenue £6,793.00
Average Sales Volume 339
Total Project Cost £74,750.00
Monthly Cost £1,245.83
Month's elapsed for sales Revenue > Monthly Cost 7
Month's elapsed for sales Margin > Monthly Costs 17

 

Step 5: How Do I use this Information?

 

You may have several aims. You might be looking to get an idea of total cost and revenue as part of a feasability study. In general terms I would suggest making adjustments till the following statements are true:

  • Your service providers / marketing are comfortable with the numbers (especially percentage growth)
  • The business as a whole is happy with the forecast in terms of product volume, revenue and margin
  • You are happy with the total costs

Once this is true you should look at some smart goals (see the section on aiming for the right targets) - how many people do you need to get to the website, at what conversion rate, to support the sales forecast? That however will be another spreadsheet and another topc!

Once you start a project, and it goes live be sure to revist the sheet - make another version, and update the months with actuals as higher or lower performing months will have a knock on effect, and the earlier you notice this, the sooner you can start making adjustments.



What have we achieved?

Now you should be able analyse the potential return from your new eCommerce website (at least in terms of sales, let us not forget brand, customer services and a host of softer goals).

You should be able to answer the question "Can I afford my eCommerce website?" in terms of expected return.

More importantly you can complete a basic eCommerce sales forecast and you can build it into your eCommerce strategy.

If you go through these steps, be sure to work with your provider on the findings (do you have a plan to grow the site traffic by x% per month to support the forecast?). If you do this and monitor and react to sales month to month you are way ahead of the curve in terms of growing eCommerce sales

If you have not already please go ahead and grab your free. As always we would love to know how you have actually used the tools provided, and if you have any questions, queries or concerns be sure to get in touch or simply ask in the comments below.

Of course, if you want someone to create your eCommerce strategy and do the eCommerce financial planning and analysis for you, you are welcome to get in touch about that as well!

 

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