The benefits of binary file forecasting

Mail order businesses tend to build a sales forecast on a seasonal or annual basis, using a campaign-led, bottom-up approach. But with the plethora of new media available it’s becoming increasingly difficult to accurately forecast sales using a bottom-up, campaign-by-campaign approach.

In addition, as the multichannel market evolves, it's essential to understand what the true value of a customer is and what effect recruiting additional quantities of new customers or reducing your quantity of new customers will have, not just on the next season or the forthcoming year but also on your two- and three-year forecasts and projections.

If we accept that customer recruitment is in essence an investment for future years, then it's tremendously important that we understand what value those customers will add to our revenues in the years ahead. It's also essential that we base future projections on accurate, historic evidence.

Traditional methods of forecasting, however, do not manage this well for new media, and as a result we see many businesses failing to recruit enough new customers because they fail to understand the value that recruitment adds to the business, not just in the first year but in subsequent years as well.

Successful businesses have three clear attributes when it comes to planning for success. First, they know where they want to get to, very specifically, in terms of revenue targets, customer numbers, retention levels, spend per customer, and allowable cost to recruit a customer. Second, they understand where they are today in terms of these metrics. And finally, once they understand those two things, they plan what they need to do to get there.

When you talk about where you want to get to, it's tremendously important to have a very clear, unambiguous sales target, preferably for the next two to three years. You also have to understand how long you're willing to take to get to that point. And the company's targets need to be broken down, not just by sales revenue but also by what proportion you can expect to get from existing customers and, hence, how many new customers you need.

In essence, and for almost any business, there are only three marketing drivers you can affect: how many new customers you recruit in a given period; the number of repeat purchases by segment and period; and the spend per customer in a given period. Every action you take as marketers has to affect one of these three drivers.

Binary file forecasting is arguably the best way to help you plan for your business's future. It enables you to understand the "what if?" -for example, "What if I recruit twice the number of customers next season? What effect would that have not just on the year but on subsequent years as well?" It helps us understand what we need to change to achieve our target sales in a given period. And it's all based on evidence. It's important to understand this ignores campaigns; it's totally at a customer level.