Home  › Marketing › Strategies

Forecasting the Turning Point

  |  May 15, 2001   |  Comments

Market forecasting is a little like playing the lottery: If you don't play, you can't win -- you can't predict the turning points of your revenue or even come close to being a market winner.

Customer spending fluctuates -- a little up, a little down -- all the time. But, normally, these small changes cause only minor inventory or production problems. However, dramatic changes in the country's economic climate can lead to a major turning point in a company's revenue growth pattern.

Knowing ahead of time that a major change in growth is about to occur allows managers to develop plans without the pressure of having to immediately react to unforeseen changes. Forecasting these turning points requires good data and the proper statistical tools -- and a bit of luck.

Statistical tools and techniques can, under the right circumstances, point to turning points in the economy. Since every industry behaves slightly differently, these techniques need to be adjusted for each company in order to find the techniques that can forecast turns in the market.

A number of forecasting techniques are available, ranging from asking people for their opinion to creating complex statistical models. Two of the most important characteristics of good forecasting techniques are accuracy and lead time.

No forecast will be 100 percent accurate, but a good forecast will turn out to be close enough to the actual data so that developing it will have been worthwhile. In addition, it is important that the method selected be able to predict turning points -- such as when growth will go from positive to negative. It's these turning points that help managers develop plans early.

One technique used by economists to predict economic changes is to identify a series of data that changes direction several months before another type of data -- those "leading indicators" can frequently be used by marketers to predict upcoming changes in sales revenue.

Web marketers collect a great deal of data about people who visit their Web sites. Everything from the number of pages visited to the number of customer-service contacts can be tracked and recorded and made available for analysis.

This data can be compared to key national economic data to identify leading indicators that can give you advance warning -- before changes occur in customer-buying behavior.

By comparing known leading indicators to a company's sales and Web-site-activity data, leading indicators can be identified that can predict turning points in the company's revenue.

For years, the U.S. government has made available data for 12 leading indicators that change direction before general changes in the economy.

An easy way to get started looking for your own leading indicators is to create some simple graphs.

Starting with two or more sets of data, use Excel or another program to plot them across time. If it appears that a series of data turns up or down several months ahead of your own company data, then slide the leading-indicator data a few months to the right and see if the curves line up.

You may want to start with your own data, comparing advertising expenditures to sales revenue to try to determine the lead time between changes in advertising and changes in revenue. Then, compare your revenue data to public economic data; look for a data series that changes direction a few months ahead of your own data.

Trying to line up data visually is only the starting point in the quest for finding and using leading indicators to forecast likely changes in revenue. A number of statistical and data-mining software products make it easier than ever before to create and test forecasts.

If you decide to dig into data mining, I predict you'll see a turning point in the accuracy of your revenue forecasts.

ClickZ Live Chicago Join the Industry's Leading eCommerce & Direct Marketing Experts in Chicago
ClickZ Live Chicago (Nov 3-6) will deliver over 50 sessions across 4 days and 10 individual tracks, including Data-Driven Marketing, Social, Mobile, Display, Search and Email. Check out the full agenda and register by Friday, Oct 3 to take advantage of Early Bird Rates!

ABOUT THE AUTHOR

Cliff Allen

Cliff Allen is President of Coravue, a company that provides content management software and application service provider (ASP) hosting for Web and email. Allen is coauthor of three books about Internet marketing, including the "One-to-One Web Marketing, Second Edition" (John Wiley & Sons, 2001).

COMMENTSCommenting policy

comments powered by Disqus

Get the ClickZ Marketing newsletter delivered to you. Subscribe today!

COMMENTS

UPCOMING EVENTS

Featured White Papers

IBM: Social Analytics - The Science Behind Social Media Marketing

IBM Social Analytics: The Science Behind Social Media Marketing
80% of internet users say they prefer to connect with brands via Facebook. 65% of social media users say they use it to learn more about brands, products and services. Learn about how to find more about customers' attitudes, preferences and buying habits from what they say on social media channels.

An Introduction to Marketing Attribution: Selecting the Right Model for Search, Display & Social Advertising

An Introduction to Marketing Attribution: Selecting the Right Model for Search, Display & Social Advertising
If you're considering implementing a marketing attribution model to measure and optimize your programs, this paper is a great introduction. It also includes real-life tips from marketers who have successfully implemented attribution in their organizations.

Jobs

    • Tier 1 Support Specialist
      Tier 1 Support Specialist (Agora Inc.) - BaltimoreThis position requires a highly motivated and multifaceted individual to contribute to and be...
    • Recent Grads: Customer Service Representative
      Recent Grads: Customer Service Representative (Agora Financial) - BaltimoreAgora Financial, one of the nation's largest independent publishers...
    • Managing Editor
      Managing Editor (Common Sense Publishing) - BaltimoreWE’RE HIRING: WE NEED AN AMAZING EDITOR TO POLISH WORLD-CLASS CONTENT   The Palm...