E131: How We Came Up with Our 2018 Forecast

If you've been listening to the podcast for the better part of the quarter, then my 10 million dollar goal by the end of the year should be pretty familiar to you. Let me tell you something though, our forecast does not actually point to $10 million, it's actually $9.7 million to be specific. But… $10 million sounds a lot nicer :)

But how did we come up with $10 million in the first place? Was it because it sounded nice? Well, a little bit of yes…and no. Over the past couple of years we noticed a trend in our business: we've been constantly in growth mode, usually doubling in revenue every year. So we thought it natural for our business to double again, and since we ended 2017 at $5 million in revenue, we're on track to get to the $10 million mark this year.

But we realized that going from $5 million to $10 million requires so much more effort and resources than it did going from $2.5 million to $5 million. That means we need to make changes and do things we haven't done ever before. That also means our target revenue is still pretty arbitrary. At this point we realized the truth of a quote I like to attribute to Dave:

“Ambiguous goals lead to ambiguous outcomes.”

So our COO Jaqueline and I sat down to examine if we can get to that revenue at all, and if so, how. After thoroughly inspecting all aspects of our business, we finally got to a revenue number that's not just pulled out of thin air and is  backed by deep research: $9.7 million. Close enough.

In this episode I discuss exactly how we got to that number (down to the penny). But as a sneak peak, here are 3 key areas of improvement from which we derived that number:

• Improving Amazon listings – After some split testing, we realized that we could significantly increase rankings and sales simply by improving titles, product photography, and adding infographics in our listings. We then deduced that if we improve all of our current listings, we can get a significant bump in overall revenue. We used the data from our split tests to come up with a reasonable target revenue.

• International expansion – This may vary between sources, but very roughly speaking, Amazon.ca can give you a 10% boost in sales and Amazon EU (all EU marketplaces combined) can boost sales up to 50%. We used our current revenue numbers to come up with a target number for these marketplaces.

• Releasing new products – Launching new products is inevitable for massive growth. Based on early launch data for new products, we calculated how much sales we can generate per product per month. We already have a goal of launching 50 new products this year, so factoring that into the equation gave us a pretty good view of how much revenue we can generate from new products alone.

Forecasting is a long and arduous process, but it gives you an idea if your goals are at all possible and if so, how do you get there. With our forecast, we were able to find out exactly what we need to do every quarter, every month, and every day to get where want to be. And if we don't hit that revenue goal, we'll know exactly where we went wrong and how to correct our course next year.

Resources mentioned:

MyEcomCrew
Interview with our New Director of Ecommerce
My 2018 Goals
Traction: Get a Grip on Your Business
Splitly

How about you? What's your revenue forecast this year, or do you have one at all? Share in the comments below!

As always, thanks for listening. Until the next one, happy selling!

Full Audio Transcript

Mike: This is Mike, and welcome to episode number 131 of the EcomCrew Podcast. You can go to EcomCrew.com/131 to get to the show notes and comments for this episode. We'd love to hear from you. Today we're going to be talking about how we generated our 2018 forecast for our overall company Terran. We think you guys are going to really enjoy this. It really gives a behind the scenes look on exactly how we put together our number.

It's something that every business should be doing. I don’t think every business is doing. I can honestly say that we weren't doing this in years past. But I feel a lot more grown up now that I look at this and see that we're doing this moving forward. And I also feel very confident in our numbers because we've broken this down bite sized chunk by bite sized chunk in a pretty granular sense. And you'll see what I'm talking about as we get through this episode.

I’d love to hear from you guys. How have you put your forecast together? Let us know. Again go to EcomCrew.com/131 to get to the show notes for this episode. We'd love to hear from you. On the other side this break, we're going to dig right on into it. We'll talk to you then.

Hey guys, so glad to have you along for this episode of the EcomCrew Podcast. And today I'm going to be talking about how we built our 2018 forecast. This is something that I get asked all the time, how did you get to this number, this 10 million dollar number you've been throwing around for 2018? Well, first of all it's not exactly 10 million dollars. It's about 9.7 million. We've just been rounding up.

But it's actually pretty scientific, pretty exact. And I want to get into all the particulars of exactly how we came up with this number growing from last year from about five million trying to hit 10 million this year. And basically what's been happening is every year we've been — at first we were tripling, and now in the last couple years we've been doubling every year. And I just was like all right, let’s stick on this same track of let's see if we can double again this year.

So it did start with kind of an arbitrary I just want to double a pie in the sky thing. But I don't believe in just doing that out there and not having any data behind it or knowing if we're going to actually hit it and telling our team that there is our goal of 9.7 million and then we fall short of it, and we feel stupid and no one understands why that didn't happen.

So especially with getting someone like Jacqueline on board, our new COO. She did an episode with us. We'll put her episode in the show notes, and she'll be on more episodes with us in the future. But she's really helped establish this stuff at our company moving forward. So we sat down and started breaking things down bit by bit. How are we going to obtain an additional five million dollars in business this coming year in 2018 over 2017?

And we knew that this was going to probably happen in three major areas. And the first area is improving our Amazon listings. We've actually seen our sales go up by at least 50% by putting in place these new super charged listings. And we're actually going to be doing a course on this later this year. So stay tuned for that. But this is certainly not a plug at all for our course.

But what we've been basically doing is improving the photography, the title of the listings significantly. And we do have actually a course, some free mini course on this in my EcomCrew. So go to my EcomCrew.com and sign up there and get a free course on this. We have basically the five components to a listing. But the biggest is the photography.

And it's not just photography which is what we used to kind of think about when we're thinking of putting together really high quality listings. It's now become infographics is what we're putting up there, really high end infographics. The only thing that's really photography is the main image. Everything else after that is some sort of what I call mini infographics. So it's basically our product with a bunch of words all around it and arrows pointing to it, or the image broken up into two halves where we have the product and then like a list of benefits or whatever it might be.

And we've seen an uptake of 50% or more by doing these improvements. So that was the first thing we threw on our list here, listing improvements. But we knew we couldn't tackle all of this at one time. This is the big thing that's tough about forecasting. We say we will do listing improvements, we're not a half a million dollar company any longer with five listings where I can go through and change all this in a matter of a couple of days. This is unfortunately now a big cruise ship that can't just stop and turn around a dime and we have to plan for that.

So we’ve been behind the scenes feverishly working on getting our listings improved. And we have a big initiative to roll that out starting here later this month and next month. So what we basically did was we said, okay, how many of these can we do per week and then break that down into bite sized chunks. And then over how many months is that going to take to completely finish this project? And we think we can finish this project by the end of May, starting in the beginning of June.

So basically the first four to five months of this year are set to how are we going to do listing improvements and what are we going to see as far as yield from that? And then is there any halo effect and stuff that comes from that? So this actually is kind of interesting. The three initiatives that we have really work out to be a third, a third, and a third. So the listing improvement part for as far as gain, what we're expecting for again in 2018 additional sales over 2017 is one $1,498,873.08.

So as you can tell it's broken down like literally to the penny. We figured it out month by month what we think we're going to see in uplift because of improving our listings. And this is one of these things where it's way easier to improve existing listings and therefore improve existing sales and improve existing relationships with vendors etcetera than trying to go out and develop a bunch of new products. So this is something that we are taking very seriously.

And in addition to the improved photography and the improved infographics, and improved titles, etcetera, we're also going to be using Splitly to systematically improve our listings by doing split testing. So instead of taking a guess at what photo will be the best main photo for a product, we are now AB testing that and then AB testing it again, and then AB testing it again.

And we'll do the same for the images on the inside of the listing, the actual main product photos and infographics until we have a high degree of comfort that we have extracted everything we possibly can out of our listings as far as having the tip top listing. And this really spins that Amazon fly wheel affect. So by having an approved listing, you get more sales. By having more sales, you get higher rankings. By having higher rankings, you get more sales, and this kind of just continues to spin.

And we’ve seen pretty crazy dramatic results. It's actually nuts. We did this as a test with a couple of products. We saw our conversion rate double. Our sales then doubled and our rankings like exploded. Organic rankings exploded because it doesn't take a lot to change the Amazon algorithm. One extra sale per day means a bunch, right? So being able to double your sales means a whole bunch. And the results are absolutely crazy.

So after we did that test in a vacuum with a couple different products and saw the results, that's why we're now full steam ahead with this particular initiative. So again about one 1.5 million dollars of the almost five million dollars we are looking to achieve this year is going to be in listing improvement. The next part is going to be international expansion. So the first thing we're doing is and we've already done this is expanded into Canada.

So we launched in the Canada as a test late last year with a couple of different products. Everything worked the way we expected. We then sent in a select amount of our inventory. We had about 25% of our inventory went up into Canada. We sent 25% of the same SKUs we earmarked to send over to the UK. So basically what it comes down to is that we think we can get about 10% uplift on our Amazon sales.

So let's just say we're doing a million dollars a year in Amazon sales, we think that in the United States we think we can do $100,000 in Canada, because Canada is about 10% of the US. Depending on who you talk to, you'll hear a big or a smaller number there. Some products do really well in Canada, some don't. But Canada has less competition so you also can take that into account there. So you should really do more than 10%, but we're trying to err on the side of caution.

And then for the United Kingdom, we're expecting to have a 50% bump. So basically if we're doing a million dollars in sales in the United States, between the UK and EU, we're hoping to do a half a million. So what we have here for Canada is $355,000 in sales for 2018. And for the EU, it's one $1,311,513. And basically the way that we comprise this total is a similar thing. So we got started in Canada a little bit sooner because it's easier to get the stuff there. We'd already done some testing. So we had a head start there.

Now once you get your products listed at one of these international marketplaces, it's basically the same as starting at ground zero within the United States. So we have a pretty big ramp up period here which is the frustrating part because you look at October sales for instance, and they look really, really strong and healthy and it's really exciting. But starting at ground zero is really tough, and we have a several month ramp up period.

And if you put up zeros or close to zero in January and February, your average over the course of that period is going to be much lower and you're going to be in a great position to enter the following year really strong. But if we're trying to get that five million dollar uplift this year, it actually puts us behind the eight ball. But even with all that into account, we're seeing a pretty sizable uplift in international sales that we're expecting this year of 1.66 million dollars.

So again that came up with — we came up with that number by taking 10% of what we sell in the United States and expecting to be able to get to that point by the end of the year in Canada, and 50% of what we do in United States and being able to get to that point by the end of the year within the year. And the end of the year we used October as that number, because November and December are very difficult months to figure out because of the holidays.

So if we're doing the full amount by October, we're backing it out, well how long is it going to take us to ramp up to that point? And what uplift are we going to see in each month as we ramp up to that point? And that's how we ended up getting to the number that we're at. So we took a small percentage of it in February in Canada, a little bit bigger in March, a little bigger in April, and it just continues to grow May, June, July, etcetera.

And then we did a similar thing within the EU. We expected to be up and running by March which we are, and we do have our products in there already and we already are seeing some sales there which is great. And then of course then it’s just a slow, okay, we're going to see additional growth month by month as the year progresses. So that's how we came up with that 1.66 million dollars in additional uplift in the EU.

The third component is new products. You guys if you listen to the 2018’s goals episode, you know that we are going to try to launch 50 new products this year. So what we did is we listed out all of the products that we're planning on launching that we first know about. So that's 23 products. We already have 23 products on the radar. These are things that we know we want to develop. They are either already been ordered or they're well into the production lifecycle.

And then the other products, the other 27 products that we’re going to have to launch, we don't know what those are yet. And we're going to have to figure out a way to get them launched before the end of the year. But we know that those other 27 products probably aren't going to contribute much if anything to this year's bottom line, because it takes a lot of time to get the product developed.

And our goal was to develop that many products and very few of these other products that we're talking about are going to be launched by the end of this year. We just need to have them developed and ordered which means they will be arriving before next year. So of these 27 products, we mapped them all out SKU by SKU. We put together a forecast of what we think we're going to sell monthly of each product.

So like at the end of the day, like what is our forecasting goal for the product? What are we going to sell monthly units sold of each product? Let's put that on the forecast for let's say again in October as a for instance. And then back that up and figure out, okay, well again products don't launch in a very linear fashion where it's more like a hockey stick fashion. So you start out a bit slow and you get some traction and start to ramp things up. So we have that all built into our forecast.

And what we ended up figuring out is that we can do 1.72 million dollars of additional sales from new products. And that's where we are at. So, adding all of that up, we're planning on seeing a 4.86 million, basically a five million dollar lift in overall sales, which gets us to our 9.7 million dollar number. So what also happens is with a forecast like this is that again that hockey stick grows.

So we came off of last year in that five million dollar range which means that in a bad position let me just also say in terms of continued growth. Because one of things that we talked about on previous episodes of the podcast is we kind of really hit a wall with our team being able to continue this doubling every year with what we had in place. We had good people, in some cases not. We had to make a couple of changes.

But overall we had a really good team, but we just didn't have the infrastructure to be a ten million dollar company let alone a five million dollar company which we were last year. So we had to take a step back and work on that stuff, because we didn't really have any more products in the pipeline. And we didn't have the listing improvement stuff done and the international marketplace stuff done in a way that we wanted.

So we basically, we ended the year doing five million, and we came in started the year at the same exact pace. We put up a number of 354 for January. Our forecast was 350, so we were just slightly ahead of our forecast which is great. But you take 350,000 and multiply it by twelve, and it's not quite linear like that because there's the holidays and other things. But basically that's your five million dollar a year and by the time you factor in the holidays and prime day, and a couple of other things some spikes here and there. And we were just basically on that same pace.

So basically what we have here is our forecast is 350,000 for January, 400,000 for February, 450,000 for March, 500,000 for April, and then 600,000 in May. That's where we see the real big kick in coming and we start to see the fire kind of fuel 700,000 in June, 800,000 in July, 900,000 in August. A million dollar month we're hoping to get to by September, another million dollar month in October, an uplift in November of 1.2 million because of the holidays kicking in, and 1.8 million dollar December.

That's where we're hoping to be by the time all the three big things we talked about kick in which is the listing improvements, the international sales, and new products. We’ll also see a little bit of uplift from some of the insularly things that we do. But our company’s main focus is these three big things. It's really important. You can't do everything.

Sometimes people ask me like doesn't it bother you that your website has this broken or this isn't quite right or you're not sending out this email or that email, you're not doing everything 100% perfectly? And the answer is, yes it does bother me. But I have to focus on something that's going to move the needle in six figure increments and not three figure increments. I mean you can improve something on the website, and you might get one or two more sales a month and it's going to give you $100 in additional sales for the month, versus working on something that's going to literally produce six figures in income at no additional sales per month.

I have to focus on that. I have to focus on the bigger things and just accept, resign myself to the fact that not everything is going to be perfect all the time. And it's the same thing with our team. Not everyone will do something exactly the same way that I will do it all the time, but I can't do everything all the time. And if I were to try to do that, we'll never get to this number. So even if someone does something 80% as good as I would do it, at least they're doing it, and if they're doing it on their own even better. If they're taking the initiative and doing it on their own, it provides even more value.

But what I found is actually people that are focusing and have more time and they’re laser focused on what they're working on probably can do it 120% better than I could. And that's where we really end up at, and I see a lot of examples of that in our company and I hope to see that as we go through the year. So that's basically an overview of how we got to our forecast for the year.

As of recording this, I'm happy to say that for the year, we’re at 105% of our forecast. So taking into account our monthly goals for the first few months and our total sales that we posted, we are ahead of the game which is a good spot to be in. I don't want to be playing catch up later. We have some pretty intense months coming up, some big goals, lofty goals, and we're don't want to be starting behind.

So through the first quarter of the year, we are going and ahead of schedule which is awesome. The second quarter like I said is going to be intense. By the end of the second quarter, we need to be on pace of already doubling our sales from where we started the year at. And again the problem here is, yes we will have doubled our sales by June, but because we didn't start the month or the year – I’m sorry we didn't start the year out with a double month from a previous year, just having it doubled from June isn't going to get us a double year for throughout the year.

So because again let's say we start at 350,000 let’s say. You take that, let's say that's a five million number. I know that doesn't work out quite perfectly. But if we're doing 700,000 by June, and we ramped up to get there, that still doesn't get us to the number that we need to be at. So basically what will end up happening is we'll have a lot of growth in the chamber and super charge for 2019 as well.

And hopefully we can continue on this pace much easier next year because hopefully next January will be significantly higher than last or this coming December without the holiday spike. So and again staying focused on the big picture. We've also gone through Traction which we're going to be going through several episodes coming up here very shortly on Traction which is a book that I read that helped lay out our goals for a ten year plan, a five year plan, a three year plan, a one year plan, and then breaking that out into quarters.

So quarter by quarter we have our goals here, and we know we can achieve this growth and we know what we have as our long term growth pattern. I'm very excited about this. I hope we can pull this number off this year. It's definitely like I said, it’s a lot to bite off and chew, but I can look all my employees in the eye and say, this is how we're going to get there. It isn't some pie in the sky, a fabricated number that we just made up and pulled out of our rear end. It really has some data, some logic, some science, etcetera behind it not only for me but also with our COO Jacqueline.

So that's where we are at for our 2018 forecast. Again I hope you guys enjoy this episode. I hope you can apply this type of thing to your business, mapped out month by month guys and see where you're going to get in. And then you've got to back it up. If you want to have a goal of doubling, how are you going to get there? Map it out. It’s humbling and that's what we did.

We mapped it out, we know exactly how we're going to get there, we sat down then as this is what we need to do each month, how are we going to do that? And that's how we came up with the three big things that we have for this year. And we know exactly for each one of those components where we need to be, and we can be monitoring our success and failures there up against these numbers rather than just scratching our head and wondering how we're going to get there or if we're even on track.

So I think that this is a good thing for every business to be doing. I know I can say wholeheartedly this is not something that I was doing up until this point. We had goals set, but not really about how we're going to get there specifically. So having someone like Jacqueline on board has really helped with this, and I think it can help with your business as well. So again hope you guys enjoy. Don’t be rambling about this topic for today. So let’s sign off. Thanks for listening guys; we'll talk to you soon.

And that's a wrap on episode number 131 folks. Again you can go to EcomCrew.com/131 to get to the show notes for this episode. We would absolutely love to hear from you. I'm so curious out there in EcomCrew land, what's everyone else doing? How do you put your forecast together? Did you even have a forecast? I threw myself under the bus. I didn't have a forecast for this type of stuff in years past.

Let us know and I can put you on the clock and hold you accountable to doing one of these moving forward. I think it's super important. Begin with the end in mind and back yourself out so you know that the numbers you're trying to achieve are doable. And also it's good to have goals and know exactly what you have in store so you can plan your cash needs and all kinds of other stuff in the inventory type based business. So until the next episode everybody, happy selling, and we'll talk to you then.