Making a Market Forecast Estimate 1

Relatively few marketing plans are blessed with budgets for professional market research. When you can’t pass the problem to professionals, then you have to make some intelligent estimates. Get comfortable with the idea of making good educated guesses. Many people think there is something magic about this, some technique they don’t know that the experts learned in graduate school. Don’t worry about it. Having gone through graduate business school and worked as a vice president in a marketing research firm, I can reassure you: sophisticated data analysis rarely works very well for business forecasts. No matter how elaborate the forecasting model, mathematical forecasts are based on past results. Nobody knows the future.

In most situations, the best way to create a market forecast estimate is to find an expert forecast, estimate from past data, find parallel data or apply a model.

Finding an expert forecast
If you can find an expert forecast already published, or if you have a budget to pay for an expert forecast, that’s a luxury. This probably means you don’t have to do your own.

Many expert forecasts are published where you can obtain their results for free. Some of these are government forecasts intended to be free, some are expert forecasts made during interviews or news media coverage, and some are professional forecasts whose highlights are released to the media as teasers to sell the more expensive research.

You can look for these forecasts in published news reports, on the Internet, in library reference materials, and in trade association publications. Where yours might be found depends on your industry and the exact nature of your business. Unfortunately, nobody but you can pinpoint exactly where to look for your industry and your plan, but at least you can consider some examples.

The U.S. Bureau of Labor Statistics regularly publishes job outlooks that include forecasts of the numbers of certain kinds of jobs into the future. If your marketing plan needed to project growth in the number of accountants, or chief executives, or heavy machinery operators, you could find that at the BLS site. You could also find a projection showing projected growth of computer industry jobs, or growth in specific employee categories.

If, for example, you are working on a marketing plan involving soft drinks you could go to the national soft drink association’s publication Beverage World for a detailed five-year forecast of soft drink consumption.

Several major business magazines publish economic forecasts regularly. You could go into a reference library and use the Readers’ Guide to Periodic Literature to find published data related to your data needs. Business Week magazine has a weekly column on business outlooks, and quarterly surveys of industry outlooks.

Estimating from past data
Although the past doesn’t really predict the future, it can indicate trends. Sometimes you can find past data on a market and use that to project into the future. The principle of using past data as a guideline for the future is one of the fundamentals of forecasting.

It’s particularly important for market forecasting, however, because you’ll frequently find ample data about your market’s recent past even when you can’t find a market forecast. Using the past data will get you a good starting point and a sense of reasonableness for your forecast.

Past data estimate-example
For example, say I want to project the market for restaurant equipment in Lane County, Oregon. I can go to the U.S. Census Bureau State and County QuickFacts to find out that Lane County had 611 “eating and drinking places” in 1996 and 639 in 1999. I don’t particularly like the fact that these numbers are several years old, but they are the latest available and they are also better than any other numbers I can find. I could count eating and drinking establishments by using the Yellow Pages in the telephone directories, or some other means, but any alternative would be impractical and expensive. So I accept the latest available census data. I calculate the growth rate for 1996 to 1999 and apply that same rate into the future to create a market forecast, as shown in the illustration below.


Adding common sense and educated guessing
Is this the best I can do? Maybe not. I can probably take the past data as a base number, and then add my own research and common sense to improve on it. For example:

  • I could contact the local Chamber of Commerce or restaurant association and ask for an expert opinion about the fate of eating and drinking establishments in the recent past and foreseeable future. If the local expert says there has been a boom in restaurants, or a problem with restaurants, then I can use that information to adjust my growth rate up or down. In my marketing plan text I would explain what the past growth rate was and why I was expecting it to change.
  • I could also check with the Chamber of Commerce or the local governments to find economic growth numbers. I could compare general economic health in the 1996-1999 period to the 2000-2005 period as well as projections for the foreseeable future. I would then revise my projected growth rate accordingly, and explain in my text about the source of the growth rate figure.

The important point is that I wouldn’t have to just take a wild guess about the restaurant population. By starting with past numbers I improve the overall quality of the forecast. This is mainly just common sense and educated guessing.

About the Author Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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