February 9, 2023 (Updated: May 4, 2023)
Leaders can’t predict the future. So how do they know where to spend their resources, which targets to set, and which areas to focus on? The answer is effective forecasting. As a data-driven method of preparing for the fiscal year, forecasting in marketing is one of the most important tools for business success. However, according to Gartner, only 50% of sales teams currently have high confidence in their marketers’ forecasting abilities. Today, we’re taking you through the six most effective methods for forecasting in marketing with the following topics:
The forecasting techniques we’ve listed below include a mix of qualitative and quantitative methods. Some use analytical tools or software, while others don’t. But remember, when businesses use a wider range of forecasting methods, they gain a wider range of insights.
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Time series analysis is a form of forecasting based on historical data. Marketers analyze this data, and then use it to predict and investigate trends. For this method, you need to have a large enough pool of data to work with. This should include historical sales and marketing data. Once you have this knowledge, you can extrapolate it to create models that predict future growth.
The most common model forecasters use to extrapolate data is linear regression. This tracks two co-dependent variables and estimates the effect they’ll have on each other. For example, you could analyze how marketing spend will affect your share price. As marketing spend goes up, the share price will, too.
Other models include polynomial regression, exponential growth, and logarithmic or moving averages. Moving average forecasting is ideal for growth projections, as it reflects the organic pattern of growth in marketing, starting slow at first then building momentum to the point of eventual saturation.
Time series analysis is a great method for establishing patterns in sales. But there are flaws that mean it’s far from an all-purpose tool. You can only gain value from a time series analysis if you’re operating in a stable market. So, if you think the market may be disrupted at some point—like a new competitor entering the arena—your modeling could become useless. The algorithms involved in time series analysis can only produce consistent results.
The Delphi method is a structured communication technique used for forecasting in marketing. It creates predictions based on the opinions of a panel of experts. Over several rounds, these experts receive a series of questionnaires. Then, at the end of each round, the experts see an aggregated summary of the last round. This gives them the opportunity to alter their response based on collective opinion.
In short, the Delphi method is a framework marketers can use to produce an expert consensus. There are valid reasons why you may want to defer to experts. A recent HubSpot study showed that even though most salespeople spend over two hours on forecasting per week, their predictions are typically less than 75% accurate. That means it may be more economical, and more valuable, to use expert insights.
Although it does force consensus, the Delphi method doesn’t guarantee valuable insights. It takes a long time and a lot of effort to run. So, in terms of costs to benefits, the value the Delphi method might not measure up to your business needs. But if you’re willing to take on the risk, this is a potential method for forecasting in marketing.
Smaller companies can struggle to find the time and capital for automated forecasting methods. Even worse, if they haven’t got the data pool, most quantitative methods are off the table too. That’s where test marketing comes in. Here, a company can sell small amounts of its product to a select audience, to assess the demand and sales performance.
After this test period, the company has a limited pool of data to work with. Marketers can calculate the potential growth and see what segments of the market are responding best. Test marketing is an excellent way to forecast your product’s performance in practice. There are certain aspects of market response that are impossible to plan on paper and may need trials in reality. And this is where test marketing has value—it’ll show you the potential performance of new products or services that your team otherwise wouldn’t be able to plan for.
Some qualitative techniques are more opinion-based than others. Methods that focus on opinion are known as judgment techniques. These techniques include expert consultation methods like the Delphi technique but also extend to customer feedback and intention surveys.
As we know, in some customer-focused markets, it’s useful to get your customers’ opinions. This is especially the case in B2B markets, where companies often spend large amounts of money on ongoing contracts. Customer surveys are a useful method for marketers to forecast the effect of tweaks and changes. If you were set to change the price of your software, for example, you could survey your existing customers to find their maximum spend. This information would then be the basis for your forecast of your company’s product performance.
Read more about it: What Is Revenue Forecasting and Why Do You Need It?
Leading indicators are a form of key performance indicator (KPI). Just like lagging indicators can tell you about the past, leading indicators forecast the future. They’re a certain indicator of performance that might predict future success. This makes tracking leading indicators an ideal forecasting method for marketers that have specific needs, or certain distinct metrics that they want to track going forward.
For example, if you want to sell 100 pineapples, the amount of rain set to fall that year would be a leading indicator. You could look at your lagging indicator, which in this case might be the number of pineapples you sold last year, and determine your future sales from that. But this doesn’t take the context of the upcoming year into account. Maybe there’s a drought coming, which you wouldn’t prepare for if you were working on last year’s information.
Leading indicators for forecasting in marketing work much the same way. They’re critical for forecasting your company’s performance in a way that’s responsive to change. This method also encourages sales teams to think outside the box. When you focus on lagging indicators, you try and repeat the successes of the past. Yet, if you forecast based on leading indicators, you’re forming an image of success that’s inherently forward-looking.
We all know that correlation doesn’t always equal causation. But it can show some interesting connections that can illuminate upcoming trends. For example, you might find that your business’s customer acquisition rate correlates closely with the increased production of a certain product. This would be a useful piece of information if you wanted to know which type of product draws people in. So, as a tool for forecasting in marketing, correlation can be extremely valuable.
Of course, if done incorrectly, correlation techniques can be catastrophic. So it’s important you don’t get drawn into analytical cul-de-sacs by correlations that seem meaningful but ultimately aren’t.
At its heart, strategic forecasting in marketing uses benchmarks, historical data, and other information to make predictions about future sales or demand. From the sales end, the entire purpose is to produce useful information for your sales team. Once your forecasting is complete, you should be able to present them with an informed, thorough, and comprehensive report of the deals they expect to close in the next period.
Marketers can also use forecasting methods to assess consumer demand, estimate market sizes, and calculate potential revenue streams for new products. So, how do you choose the right method for forecasting in marketing? Consider taking these three steps:
There are two main categories of forecasting practices in marketing: quantitative forecasting, and qualitative forecasting. Quantitative forecasting involves numerical information, like sales figures and budget reports. It uses this data to produce numerical projections.
On the other hand, qualitative forecasting involves educated opinions, consumer responses, and expert judgments. It yields information like demand levels, strengths and weaknesses, and predicted performance. However, quantitative forecasting is better for established businesses that already have historical sales numbers. If the subject of your predictions hasn’t been market-tested yet, qualitative forecasting will be more fruitful.
Related reading: A Detailed Guide to Marketing Analytics
There are several other factors to consider: what data you have available, who the report is for, how much time you have, the context, and the value of the information to your company. You should always choose techniques that align with these factors and fit the needs of your business. Just because a method may be more extensive—or expensive—doesn’t mean it’ll yield more valuable results for your company’s situation.
Even though it might seem that quantitative assessments produce the most “accurate” measurable reports, many businesses still rely on qualitative methods to fill in the gaps. For example, many businesses still incorporate opinion and intuition into their marketing forecasts. However, it’s not an issue of either/or. You should use a blend of qualitative and quantitative techniques that work together to produce the most dynamic results.
It seems that businesses are increasingly starting to rely on quantitative assessment for analyzing the advertising market. As these are based in verifiable fact, they often yield better and more accurate results. In fact, one Gartner study predicts that by 2025, up to 95% of decisions and predictions will be partially based on AI tools.
Read more about it: Market Forecast Definition, Benefits, and Techniques
Forecasting in marketing is becoming increasingly important post-2020. The 2022 Salesforce State of Sales Report found that 70% of sales leaders take fewer risks now than in pre-2020, while 55% prioritize low-risk strategies. With accurate forecasting, you can get a holistic view of your company’s potential. Analyzing quantitative and qualitative data will show you which sales goals to establish, providing you with a framework for decisions over the next period.
Plus, forecasting in marketing is the ultimate risk-minimizing strategy, so it’s more vital than ever to get it right. With a combination of these methods, though, you can predict your way to success and provide your team with indispensable advice for every content marketing campaign.
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