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How to forecast sales of a new product

Market research and testing will help you predict customer demand

Read time: 4 minutes

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Forecasting sales is always a challenging task because of the many variables and unknown factors involved. The job becomes all the more difficult when you’re forecasting sales of a new product because you have no past performance on which to base your estimates.

Despite the difficulties, sales forecasts are necessary for planning the resources you will need to meet actual demand, including inventory, staff and cash flow. A sales forecast is also an important tool in measuring the performance of your sales, marketing and operations.

“There’s a lot of expense involved in launching products,” says BDC Business Consultant Jennifer Rikely. “It’s going to cost you x dollars to launch it, and you need to estimate how soon you can recoup that money.”

Forecast based on sales of existing products

The most common forecasting method is to use sales volumes of existing products to forecast demand for a new one. This method is particularly useful if the new product is a variation on an existing one involving, for example, a different colour, size or flavour.

In this case, your new product will likely sell very much like your (or someone else’s) existing ones. This is especially true if you’re making no major changes in marketing or distribution.

A sales forecast becomes more complex if you’re launching a completely new product. Here, you will need to do more market research to learn about the potential market for your product.

Use affordable market research techniques

Large companies use sophisticated market research techniques, but there are affordable methods you can use to help you project sales of your new product.

Rikely, who advises companies in Vancouver on improving their sales performance, offered the following tips for putting together your sales forecast.

Ask your sales team

Sales representatives know your market intimately, including what your competitors are doing. Your customer service team will also have insights into the potential of a new product. Discuss your project with them and get their help in estimating how many units you can move in the initial months as well as what the ramp up rate might be. As an added bonus, their participation may make them feel more engaged in the successful launch of the product.

Seek other sources of intelligence

Talk to trusted customers, suppliers and sales partners such as dealers or distributors to get their take on how the product will do in the first year. “You can say: We’re thinking of doing something along these lines, what do you guys think?” Rikely says. “It’s amazing what people will tell you if you ask.”

Consider primary research

Primary market research involves such techniques as conducting surveys, organizing focus groups and observing customers. It can produce valuable insights into potential customer demand for your new product, but it involves a commitment of time and money. To make your investment worthwhile, it’s a good idea to hire a market research professional to guide you.

Start with a pilot project

It often makes sense to test your product on a small scale before rolling it out to all potential customers. You could try it out with a small number of sales reps to gauge market reaction, Rikely says. “Use the information to rejig the product and your marketing. And then do a full launch.”

Monitor your results and adjust

Your initial sales forecast for a new product will involve a lot of guesswork, which is why you should adjust your forecast as soon as you get actual sales results.

That means you have to be disciplined about monitoring sales on a monthly basis. The first few months will give you crucial information about product pricing, production and overall customer reaction, Rikely says.

“Every month you need to be looking to see if you’re on track with your forecast. If you’re not, you want to figure it out sooner so you can take action, rather than at the end of the year when it’s too late.”

Disciplined research pays dividends

Rikely says some disciplined research before the launch and during the first year can pay huge dividends in producing a sales forecast that will support a new product’s success.

“Sometimes our gut instinct is spot-on, but sometimes it’s not,” she says. “Anytime you can put some science and numbers, some discipline, into your decision-making, it’s a good thing.”

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