One of the biggest challenges facing startup founders is producing sales forecasts. You need to create realistic, convincing sales projections for your own use, or for potential investors. The primary aim of sales forecasting is not to give precise numbers, but to identify the full range of possibilities, and understand the underlying drivers and assumptions – the whys and hows – to generate your sales targets.
Whether a specific forecast actually turns out to be accurate is only part of the picture. The objective of a forecast is to map uncertainty. A forecast must have a logic to it that is articulate and moreover, must have an underlying process to properly account for the opportunities and risks it presents.
There are forecasts in many walks of life – economic growth, election outcomes, football matches – where the approaches can be used as learnings for startup sales forecasts. But let me introduce my ‘favourite’ forecast as an example to show case the structure and dimensions required in making sales estimates, and where the term ‘forecast’ came from.
On 26 October 1859, the Royal Charter steam clipper was wrecked in a storm off Porth Alerth in Dulas Bay, the northeast coast of Anglesey. The precise number of dead is uncertain as the passenger list was lost in the wreck, but it’s said that just 40 of the 480 passengers survived. The storm in the Irish Sea killed 800 people, 133 ships were lost and a further 90 damaged.
The disaster led to the establishment of the Meteorological Office by Robert FitzRoy. Previously captain of HMS Beagle during Charles Darwin’s famous voyages, he created systems to make accurate daily weather predictions for sailors and fishermen for their safety and to prevent similar tragedies. He called this by a new name of his invention: ‘forecast’. FitzRoy then conceived the Shipping Forecast in 1867 as a public service used to warn of storms that is still used today.
The Shipping Forecast is a four-times-daily BBC Radio 4 broadcast of weather reports and forecasts for the seas around the coast of Britain. It’s produced by the Met Office on behalf of the Maritime & Coastguard Agency and has always held a magical romance for me. We all have dirty secrets – some people collect train and bus numbers, mine is listening to the Shipping Forecast.
Last night I ended the day as I so often have over the years. Approaching 1am, I put my book down, lights off, prepared to snooze and listen to it. I can’t imagine what it’s like being out in the open sea in really bad weather, day after day. My dad was in the Royal Navy during his National Service and I always think of him when listening.
Those potentially at peril on the sea rely on these bulletins. Sandwiched between Sailing By, a jaunty pan-pipes musical interlude and the national anthem as the station closes down each night, the forecasts are a gem for listeners like me, who’ve only ever been out to sea on a holiday pedalo in Greece or a day’s fishing trip around Anglesey.
These forecasts, with their place names, terms and weatherly detail you never hear in the rest of life, and their hypnotically formulaic progression (area, wind direction, strength, precipitation, sea conditions, visibility), have a talismanic, haunting power. The last of the four broadcasts includes weather reports from a list of coastal stations at 0052am, and inshore waters forecast at 0055am, and concludes with a brief UK weather outlook for the coming day. It’s then updated at 0520am, 1201pm and 1754pm. Classic radio for me!
Attention All Shipping! the opening line, just grabs you. Is there an announcement more dramatic? You listen. It might be important. I find the repetition of the names of the sea areas hypnotic. It’s become a long-standing ritual; I find the names as magical as anything from Tolkien. The names of the thirty-one sea areas have various origins: Viking, Forties, Dogger, Fisher, Sole and Bailey are all named after sandbanks, then Cromarty, Forth, Tyne, Humber, Thames and Shannon after estuaries. Dover after the town, and Wight, Lundy, Fair Isle, Faeroes and South-East Iceland are all named after islands. And German Bight? A bight is a wide curve in a shoreline.
In the forecast, areas are named in a roughly clockwise direction. The forecast has a limit of 370 words and has a strict format, broadcast in nine minutes. It begins with And now the Shipping Forecast, issued by the Met Office on behalf of the Maritime and Coastguard Agency at 0520am GMT/BST today. It’s mesmerising, especially if you’re listening warm and safe, snug under the duvet as the wind and rain lashes against the window on a dark, black night. In this context, they can seem like a litany, especially if you’re half-asleep. If you’re wide awake, they have their gently comic bits too: Scilly Automatic always makes me chuckle.
There are warnings of gales in Rockall, Malin, Hebrides, Bailey, and Fair Isle. This sometimes follows the opposite format (e.g., There are warnings of gales in all areas except Biscay, Trafalgar and FitzRoy). The General Synopsis follows, giving the position, pressure in millibars and track of pressure areas…Low, Rockall, 987, deepening rapidly, expected Fair Isle 964 by 0700 tomorrow.
Each area’s forecast is then read out. Several areas may be combined into a single forecast where the conditions are expected to be similar. Wind direction is given first, then strength on the Beaufort scale, followed by precipitation, sea state and lastly visibility. Change in wind direction is indicated by veering (clockwise change) or backing (anti-clockwise). Winds at or above force 8 are also described by name for emphasis, i.e. Gale 8, Severe Gale 9, Storm 10, Violent Storm 11 and Hurricane force 12.
Visibility is given in the format Good, meaning that the visibility is greater than 5 nautical miles; Moderate, where visibility is between 2 and 5 nmi; Poor, where visibility is between 1000m and two nautical miles and dog, where visibility is less than 1,000m. Beautiful, isn’t it. Here’s an example of a full area forecast, which I can recite from memory…
Humber, Thames. Southeast veering southwest 4 or 5, occasionally 6 later. Thundery showers. Moderate or good, occasionally poor. Tyne, Dogger. Northeast 3 or 4. Occasional rain. Moderate or poor. Rockall, Malin, Hebrides. Southwest gale 8 to storm 10, veering west, severe gale 9 to violent storm 11. Rain, then squally showers. Poor, becoming moderate. Southeast Iceland. North 7 to severe gale 9. Heavy snow showers. Good, becoming poor in showers. Moderate icing.
Ignoring both the harsh reality of what it represents to those at sea, and the romance and intrigue for me, what are the lessons we can take for our startup sales forecasts from the Shipping Forecast?
Well, like the Shipping Forecast, a sales forecast is used to support decision-making to trigger specific actions. It’s about demand forecasting and should be done at the right aggregation level, tracked with the relevant metrics, and supported by an efficient review process.
When setting up a sales forecasting, there are four elements to consider:
1. Scope and focus You should first determine the scope and granularity for your forecast. There are thirty-one areas covered by the Shipping Forecast. This covers a wide area, but broken down into individually relevant and significant geographies. You need this detail in your sales projections, as you are always safer betting that events will unfold slowly than concluding that a sudden shift is in the wind. At sea they say never mistake a clear view for a short distance, and this applies to the granularity in your forecasts.
- Scope: consider market, channel, and customer segments (new/key accounts)
- Focus: consider product, order volume, price segments
2. Timing Once you know what granularity you’re working on, you need to identify the forecasting horizon and time buckets for aggregation. The Shipping Forecast covers a 24-hour period, broadcasted and updated four times a day. Over what periods and how often will you update your sales forecast? I’d suggest you consider weekly sales targets, built into a six-month framework, and update this on a rolling-weekly basis.
There is a tendency to overestimate the short term and underestimate the long term. Our hopes cause us to conclude that the sales boom will arrive overnight. Then, when reality fails to conform to our inflated expectations, our disappointment leads us to conclude that the hoped-for growth will never arrive at all – often right before it does.
Too often we steer into the future while staring into the rear-view mirror because the past is more comforting than the present. Our historical rear-view mirror is an extraordinarily powerful forecasting tool. The texture of past events can be used to connect the dots of present indicators and thus signpost our future trajectory.
- Time periods: What time buckets should you use – weekly, monthly, quarterly?
- Horizon: How many periods do you need to forecast – one, three or six months?
3. Metrics Choosing the right metrics for a forecasting model is complex and will have a significant impact on the resulting forecast. Depending on the metric set chosen, you might give too much importance to outliers or to risk and get a biased forecast. The Shipping Forecast covers five key metrics: wind direction, strength, precipitation, sea conditions, visibility – what are your key sales metrics that matter?
As a founder, you ultimately have to rely on your intuition and judgment, but metrics provide vital context that informs your intuition by revealing possibilities and assumptions regarding outcomes. At the same time, it narrows the decision space within which you must exercise your intuition.
Sales forecasting is all about having the right information and foresight to drive continuous growth. You must look for the turns, not the straightaways, and peer into the data to identify patterns. History doesn’t repeat itself, but sometimes it rhymes. Good forecasting a process of strong opinions, weakly held – be the first one to prove yourself wrong. The way to do this is to form a forecast as quickly as possible and then set out to discredit it with new data
- Combine KPIs: Selecting a combination of sales KPIs will enable you to track accuracy and bias while avoiding most traps and pitfalls.
- Lead & Lag indicators: Get the balance right on drivers and signals in your forecast
Your sales dashboard should include a mix of leads, opportunities and close targets, clarity on definition of ‘prospects’ and ‘suspects’, and ‘show me the money!’ data – all signalling where the sales are coming from. Fundamentally, lead-driven forecasting is key, relationships are the heart of sales, and in essence, you’re analysing each lead and assigning a value to that, recognising the length of sales cycles and how ling a lead typically takes to close.
4. Process Now that you know the core elements to your forecast template, you can set up a process. This process should be defined with three key aspects.
- Stakeholders. Bringing different points of view to the table using various information sources will help create a more accurate forecast – but be ready to face challenges of influence.
- Review cycles. When do you review the forecast? Updating your forecast more often might improve its accuracy as you have fresher data at hand. Updating it too often might create chaos as you overreact to demand changes and consume too many resources for a limited added value.
- Review process. How do you review the forecast? At the core of any forecasting process, there should be a measurement of the forecast value added and learnings they provide to the organisation
Today, extreme weather has become more frequent due to climate change, with volatile conditions putting seafarers’ lives at stake. As a result, forecasting weather elements including sea state, surface winds, and tide levels before setting sail has become increasingly important. The Shipping Forecast is updated every six hours. Ensure your sales forecast has a similar discipline making it fit for purpose.
Seafarers today can access many more sources of meteorological data. Advances in data processing and predictive analytics can provide insights on sea surface temperature, ocean currents, wave height, surface wind, and air temperature – but the basics remain. It’s the same for sales, don’t let smart data and tools mask the underlying essentials.
The former BBC announcer Charlotte Green received Valentines from fisherman who enjoyed her reading of the forecast, it’s always been magical to me as a landlubber too. However, the purpose of the Shipping Forecast is clear, and the dimensions of it offer key learning takeaways for your startup sales forecast.