Rafael Sanchez
Managing Director
Dyson México
/
Expert Contributor

Sales Seasonality No More: Scenario Planning

By Rafael Sanchez | Fri, 08/05/2022 - 13:00

In many industries, the term “sales seasonality” has different meanings. In beauty and fashion, it is determined by “trends” (hence the Spring/Summer events or Winter/Fall Closeouts). In tech, they are often relying on novelty and specialty events (like tech companies’ big announcements around September). In the e-comm business, performance in special offer days have become key to understand what success looks like for sales.  

When working on yearly budgets or “flash” sales information, companies tend to map seasonality to signal to stakeholders and top management the expected results and, as a result, balance marketing investment, hiring processes or simply, if it is a publicly traded company, what shareholders should expect quarter by quarter.

I want to challenge that misconception, since there are exogenous factors and endogenous factors that determine the sales cycle of a year. Opportunities for companies lie in breaking the “seasonality cycle,” which is why the final output in your sales plan should be scenario planning. Also, in this brief article, I will suggest four pathways to reduce exposure to risks.

Exogenous factors are defined as supply or demand shocks that are not predictable for any business. Although the Evergreen incident[1] reflected the fragility of supply chains, it was the tip of the iceberg: many months before, the pandemic shutdown of factories in Southeast Asia and China already hinted at a constrained scenario for the supply chain around the world. If you add to that an impending war in Europe and its final fruition (which increased the price of oil, grains and other commodities, and hence the cost of moving goods), the world might face a supply shock that will create a wave of increased costs that could impact price and hence, consumer behavior. In June 2022, the US Consumer Price Index (CPI), for example, posted a staggering 9.1 percent. Now, we can see how expensive goods are with inflation ramping up, generating a negative effect on consumer spending in the months to come.

Endogenous factors, on the other hand, are those that companies consider when delivering their results and that are under their control. To participate in a sales event that is in the calendar (Hot Sale México, Cyberweek, summer sales), to retain employees given the “Great Resignation,” to remain competitive, etc., a company can plan and react according to external and internal factors that are under its control. These endogenous factors are critical to sales mapping but are not the ones that determine the sales result of a season or even a year.

As a result, before any seasonality or budget planning, we need to list those effects. Whatever behavior the industry is exhibiting.

Hence, here is what is suggested:

  1. Use historic data (or benchmarks): Every piece of the puzzle starts with basic analytics. Getting your past sales, understanding the different impacts and knowing how to measure your sales cycles, crisis or bonanza will be reflected in the numbers. And here, look at three basic but useful metrics: gross sales, net sales, and profit.

Once you have the relevant data, you will see clearly where your peaks and valleys are, and perhaps both good and bad memories.

Also, are you a startup? Innovative idea? Well, there are models that you can benchmark against and companies you admire that made you decide to start your business. Understand their cycles.

 

  1. Create your baseline ng you to be a shining star. Everything takes time and patience. There are many examples in different industries. Netflix’s current downward turn in subscriptions while laying off employees goes against forecasting results one year ago. However, the increase in share and growth rate by HBO Max and Disney+ was evident to the industry. Create a scenario that is solid for you and for those who rely on you.

 

  1. Define the opportunities and risks: Adding momentum to a trend depends solely on the opportunities you see within your business. Assess the endogenous or exogenous factors. Balancing optimism with caution is an art. Incorporate lessons learned, failures, and re-inventions. Put in the time to reflect on the strategy’s execution. While it seems logical, people who are in the momentum become optimistic and blinded that the positive spiral will never end. On the other hand, many see a downward cycle as a prediction of doom. Instead, turn that into an opportunity.

 

  1. Now, fix your sales objectives: Once you get a solid view on what can be achieved, mapping seasonality is just portraying the baseline plus real opportunities (minus) risks. Commit to what you can see as a solid scenario and use the “calendar” as a delivery guide rather than a seasonality result. You will be challenged if your only answer is: “This is summer, that is why sales are down.” Taking into account analytics, opportunities, risks and solutions will make you map “summer” as an opportunity to shine rather than a result to be taken into account. If you are a startup, this output will inspire confidence in your business model. If you are an established company, the valuation behind the numbers will rely on accountability and certainty.

 

Important disclaimer: The opinion expressed in the article is personal and does not represent the point of view of the company I work for.

 

[1] https://www.bloomberg.com/news/articles/2021-08-25/the-world-economy-s-supply-chain-problem-keeps-getting-worse

Photo by:   Rafael Sanchez

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