for CPG Brands
UNDERSTANDING FORECASTING
Trade Promotion Forecasting vs. Sales Forecasting for CPG Brands
Accurate forecasting is crucial for CPG brands to optimize their trade promotion strategies and overall sales plans.
But forecasting trade promotions isn’t the same as forecasting total sales.
Here’s an overview of how they differ and why getting each strategy right, matters.
Forecasting Trade Promotions
Trade promotions refer to temporary discounts, coupons, rebates, and other incentives that brands offer to retailers to boost product sales.
Forecasting for trade promotions involves predicting the expected incremental sales lift during a promo period. Key inputs include:
- Baseline sales without promotions
- Historical lift from similar promotions
- Details like promotion depth, frequency, duration
- Competitor promotions during the same period
The output is the estimated units or dollar value goal the brand expects to hit during the promotion.
This incremental forecast feeds into the overall sales forecast and helps set trade promotion budgets.
Forecasting Total Sales
The total sales forecast projects the overall expected revenue/units for a brand across regions, products, channels, etc. Key inputs include:
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- Baseline sales absent promotions
- Incremental promotion-driven sales
- Estimates for new products, distribution gains, etc.
Total sales forecasting assembles inputs from trade promotion plans, historical data, macro trends, leadership goals, and more. It requires modeling and extrapolating a wider range of variables.
Verifying Demand Plans
Sales forecasts serve an important purpose in validating and fine-tuning demand plans.
Demand planning uses historical shipment and consumption data to project expected sales by product.
Sales forecasts can verify if these demand projections make sense for the upcoming period based on qualitative insights like:
- Promotion strategies
- Product launch pipelines
- Competitive dynamics
- Channel expansion plans
- Macroeconomic conditions
By comparing demand plan outputs versus sales forecast numbers, planners can:
- Identify unrealistic demand estimates to adjust
- Assess upside opportunities not captured in demand plans
- Get alerted to changing market conditions demanding plan adjustments
In this way, sales forecasts add an invaluable qualitative overlay to demand planning. They incorporate forward-looking insights that spreadsheets and algorithms miss.
Rather than wholly replacing demand plans, sales forecasts provide an additional lens to verify accuracy and uncover blind spots. This leads to superior demand planning and better sales execution.
Aligning demand planning, sales forecasting, and trade promotion strategies produces the most accurate view of the future. CPG brands that connect these capabilities will gain a winning edge.
Aligning the Two
Ideally, the incremental trade promotion forecasts will roll up seamlessly into the total sales forecast.
If promotions are forecasted too aggressively, it can skew the total forecast higher than reasonable. Make sure to incorporate ongoing checks into your process to help validate that both forecasts are always aligned!
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NEXT UP
Introduction to Forecasting Promotions + Importance
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