We know, we know. You sat through painful Zoom meetings with finance and settled on a forecast. The last thing you want to think about right now is revising your revenue forecast...again.
But if you used the same forecasting method you’ve relied on every other year, you may be missing the big picture.
2020 looked nothing like prior years, and it’s (hopefully) not going to look like 2021. You’ve likely made adjustments to your model to account for the change. The right question to ask is:
What should those adjustments look like?
If we assume things in 2021 will follow the same trajectory they were on before 2020, we'll be wrong. The problem with using historical models as a baseline for this coming year's revenue forecast is we don't know what the new normal is going to look like.
When the pandemic first hit, many of us (minus epidemiologists) thought we would be looking at taking extra precautions for a few weeks. When it became clear the virus was on the loose in the United States and moving quickly, some business leaders panicked. Before understanding how buying behavior would change, they slashed budgets and laid-off employees.
Clearly, some industries continue to be hit extremely hard. Airlines have suffered because of the precarious nature of traveling in an enclosed vehicle with strangers and fluctuating travel restrictions. Restaurants, leisure facilities, and auto parts & equipment have also been hit hard, which, unfortunately, isn’t likely to change in the immediate future with widespread stay at home orders and news of superspreader events being linked to restaurants and gyms.
On the flip side, some industries have thrived during the pandemic. Ecommerce, remote work software, liquor, exercise & fitness equipment, home improvement, baking supplies, and gardening & landscaping have all benefited from more than 42% of Americans working from home full time. RV sales have soared while people search for safer ways to travel, and there has been an 892% increase in roller skate purchases.
These industry trends align with common sense (except roller skates...we still can’t figure that one out), but trends have not been consistent nationwide. Buyer behavior has varied by a region’s political leanings and Governor’s orders.
What the last nine months have shown is we're not going to flip a switch and go back to "normal." Many technology companies in the Seattle area have discontinued their leases and are planning on a long term work from home culture. People are moving away from urban areas. Some are going so far as to move out of their employer's state or work on the road in their RV.
People are adapting, and companies must do the same. It's time to incorporate external indicators into our forecasts and develop a plan that optimizes for growth.
“In terms of ‘historical trending,’ looking at the past 7-8 months at face value dollar for dollar is not a good gauge necessarily of what will come; however, taking this into consideration along with where/how your industry is expected to perform in your 2021 planning makes sense. The answers will be different for each business (i.e., if you are in travel for example vs. a project collaboration tool), but my two cents are that you will start to see recovery--slower in some industries than others)--as companies realize that this is the ‘new norm’ and business needs to continue to move forward. You can't be in a ‘holding pattern’ much longer or in a ‘wait and see’ mode -- as we all know, speed matters in revenue.’’
“You can be cautious (and should be), but also need to start loosening the grip and get back to growth…”
2019 feels like a lifetime ago. I didn’t appreciate the luxury of relying on years of data to map trends. Seasonality was predictable. It was magical.
This year is different. We can use trend data to predict days or weeks, but knowing what next year will look like is no simple matter.
Use the trending directions over the last few months to help predict what will happen in the next few months. Develop multiple models for the year based on varying degrees of optimism. A successful vaccine with a reliable supply chain may start reaching first priority people as early as March and the rest of us by the end of the year. Then build in degrees of pessimism. Finally, argue with finance and don't adopt the most optimistic version or agree to reevaluate monthly to quarterly.
Why a variation in optimism? Unfortunately, early signs point to hackers targeting the vaccine supply chain, and we’ve seen how unpredictable people are when it comes to following recommendations. We have to assume some variability in the percent of the population that will elect to get a vaccine, even when widely available.
The vaccines are also not likely to be 100% effective, we don’t know if the vaccine will make post-vaccine cases less severe, and we don’t know if we’ll need multiple doses over multiple weeks or months.
The industry you belong to and the industries you sell to should heavily influence how you adjust your forecast. The industries you sell to and how they respond to the pandemic should also inform your sales strategy and possibly even your product strategy.
Industry trends may be more reliable than what you see in your own business. They will help you gauge whether you're performing on par with the rest of the sector or lagging.
For reputable data sources for industry reporting, check out Tufts University’s suggested sources. For niche markets with established customer bases, sometimes social mentions and competitive analysis are better research tools. For more market research tools, check out this Alexa blog post.
Some industries will need to be plugged into pandemic trends. For example, retail businesses can use pandemic data to determine how in-store vs. curbside pickup vs. online shopping is trending in any given area. The CDC has downloadable data available to the public here.
Supply chain issues impacted product availability at the beginning of the pandemic, but researchers are finding that big swings in consumer behavior are accountable for many of the current shortages. Whoever figures out the magic formula for what people will crave over the next few months will gain market share faster.
Inevitably, the behavior impact will vary by region as people adjust to varying degrees of change. Research organizations like Simmons Insights, EASI Market Planner by Data-Planet, or Passport by Euromonitor are good places to start your data quest for consumer behavior indicators.
Even if you throw this advice out the window when signing off on your 2021 forecast, plan to frequently evaluate your forecast. Get access to industry, pandemic, and consumer behavior data sources. Figure out which external figures are the strongest leading indicator for your business and build them into your predictive models.
If your numbers fall off course during the coming year, examine the benefits of readjusting your plan.
The best thing you can do in 2021 is to keep an open mind and follow the evidence.
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