Solutions Source: Sales forecasting

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Don’t play guessing games when it comes to sales forecasting. The outcome could be costly. Save the gambling for the casinos.

Some growers take a quick glance at the previous year’s sales and duplicate last year’s plan believing the forecasting is done. That’s not a forecast, that’s a facsimile.

“It’s a common mistake,” said Rick Goff, sales manager at Advanced Grower Solutions (AGS), a software development company. “Many greenhouses will continue to grow what they did last year without looking at demand or production costs.”

Seville Farms, a perennial grower in Lillian, Texas, uses AGS software to help create a sales forecast and a production plan. Seville understands that good forecasting starts with good planning.

Real-time data

Seville Farms breaks its planning into four basic types: Daily, weekly, last week and next year.

“We understood early the key to our ability to grow with the market lay in the sales/production process,” said Mark Clemmons, head grower at Seville.

Seville collects data in real time with the AGS software. Accurate data is key to improving the grower’s forecasting decisions, Clemmons said.

Daily planning includes production, pulling/distribution and plant maintenance/chemical application. Seville maintains a detailed inventory of every item in each greenhouse. Employees use tablet PCs (computers equipped with stylus pens) to collect and update inventory and availability data.

During weekly planning meetings, the company sets goals in each department. Performance from the previous week is also reviewed.

“We evaluate where we stand on the production schedule, are we making our budgets, are we allocating our resources according to the budget and identify activities that weren’t completed that need to be carried forward into the current week,” Clemmons said.

Seville adopted a detailed budgeting process, including all items, labor, cost of materials and distribution costs. Every week, department managers review budgeted performance and compare it to actual performance.

Balancing act

When it comes to forecasting, there’s a delicate balance between what the customer wants, actual sales and trends, said Chris Edmunds, vice president and product planner at Kaw Valley Greenhouse in Manhattan, Kansas. Edmunds also looks to trial sites for top-performing plants that will likely be in high demand.

“OFA is also a good place to spot trends,” Edmunds said.

Many factors influence sales, including neighborhoods where customers live or garden, water restrictions, socioeconomic factors, demographics, new or closing businesses, and business growth or contractions, said Marvin Miller, market research manager at Ball Horticulture. And all of those factors can add or subtract from the population of gardeners or influence the propensity for people to garden, Miller said.

“Sales forecasting is hard no matter who is doing it. One of the big mistakes folks make is not using all of the available information,” Miller said. “Many forecasters rely on gut, when an examination of sales data over time, the competition, changes in the target audience or other factors might suggest a different conclusion.”

Examine sales product by product or service by service, which takes longer, but usually yields a better forecast, Miller said.

Consider competition -- is it increasing or decreasing?

“But realize, bringing new competition to the mix of vendors in a neighborhood can yield increases just as easily as decreases, as the new competitors may bring new shoppers to the area,” Miller said.

Keep good records and set economic goals, said Forrest Stegelin, associate professor of agricultural and applied economics at the University of Georgia.

“Many growers get caught up in the enthusiasm of being a horticulturist and not a businessman,” Stegelin said. “Some haven’t set any economic goals, but only set up a production goal.”

Stay away from the “we made it up in volume” trap, Stegelin said. Instead, shoot for best in class, not average sales or average prices.

“Do you have average plants?” Stegelin said. “Some growers lower the bar, meet their goal and are perfectly happy. I encourage growers to back off some of the volume and get a premium price.”

Part of a successful sales forecast comes from a having a business plan and an income statement, Stegelin said.

For more: Rick Goff, Advanced Grower Solutions, (800) 367-7082; www.advgrower.com. Mark Clemmons, Seville Farms, (817) 276-6612; mclemmons@sevillefarms.com. Chris Edmunds, Kaw Valley Greenhouses, (785) 776-8585. Marvin Miller, Ball Horticulture, (630) 231-3600; mnmiller@ballhort.com. Forrest Stegelin, University of Georgia, (706) 542-0850; fstegelin@agecon.uga.edu.

From start to finish

At the end of the growing season, Seville evaluates its performance and creates a new forecast for the next season after developing a sales plan, a production plan and budget improvements and maintenance.

“After the sales plan is drafted, we have a target for what items in what numbers have to be ready each week,” Clemmons said. “The production software takes these numbers and puts them into a weekly planting plan, which will produce the product in the correct finishing weeks.”

The software also helps Seville compare planting dates and selling dates.

“Our technology partners are pushing us to do a better job at tracking the data we need,” Clemmons said.

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“But more importantly, they are making sure we can track the information with as little overhead as possible.”

With a good forecast and sales plan, growers can sell against future availability, Goff said. The AGS system allows growers to look at what’s projected and book an order against it.

- Kelli Rodda 

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Rate of change helps with sales forecasting

Bridget Behe, professor at Michigan State University’s Department of Horticulture

I suspect most people don’t forecast sales or just guess. I’ve been a huge proponent of looking at product life cycles to see what sales trends are.

While it is important to know the percentage increase or decrease in sales, I think the more compelling information is the rate of change. It is a slowing of the increase that tells us we’re in the mature stage of the product life cycle. It’s important to plot sales by year for key products or key product lines.

This life cycle is predictable; the only unknown is the time-frame or the x-axis. If we have a product like Tide laundry soap or Ivory body soap, the time line is 100 years. On the other hand, if we have a beverage like Snapple, it may only be a few years until we hit the mature stage of the product life cycle.

For forecasting, it is the rate of change that tells us where we are in the product life cycle, and that dictates our pricing, promotion and profitability strategies in a powerful way.

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So, don’t just make the projection for next year, but see how long you have until the profits peak (just as maturity is beginning). It’s predictable, but make time to plot sales curves.

Bridget Behe is a professor at Michigan State University’s Department of Horticulture, (517) 355-5191, Ext. 1346, behe@anr.msu.edu.

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