Making a Plan: How to Develop Three-year Projections

It’s only a matter of time before your CFO figures out that you have more influence over his financial plan than he does. But when that moment arrives, your CFO will ask you for a plan that projects sales for the next three years or so.

Smart catalog companies handle financial planning as a partnership between the marketing and financial staffs. Mailing is your key revenue-generating activity. Mail quantity, frequency, response rate and average order value (AOV) are the essential numbers for projecting sales. Consider each factor:
◆ Your mail quantity determines marketing expense;
◆ Your sales level helps project the company’s cost of goods; and
◆ Your number of orders helps project your variable fulfillment costs.

Once you tally up the balance sheet, you’ll find that mail quantity drives more than 70 percent of expenses for many B-to-B catalogers.

If you already develop an annual contact strategy that outlines mail quantities by both house and prospect quantities, you’re ahead of the game. Take your strategy and run top-line projections for your housefile and prospecting quantities. When you use accurate historic metrics for response and AOV, you have a solid projection of your orders and sales for your first year.

Projecting Housefile Growth
Your order quantity from this year’s prospecting is a good start for projecting the number of new customers for next year. Add your historic numbers from reactivation, search engine marketing, pay-per-click advertising and other sources, and be sure to include attrition.

But what happens to the housefile for your lower RFM segments?

Each of these segments has a growth rate — positive or negative. By comparing the counts of each segment over the previous year or two, you can estimate this growth percentage and project a reasonable count for each segment. To simplify this process, many marketers use blended counts, such as the 12-month file, 13-24-month file and so on. On a spreadsheet, try the following: