Dec. 26, 2018
For many people, forecasting may seem complicated--more an art than a science. It doesn't have to be. There are some basic tools and data that one can use to derive some pretty accurate sales/growth forecasts, for a market or industry.
First, look at the industry's historical growth rate and how sales or shipments react in a recession vs. economic expansion period. To do this, you have to go back a few years, at least 10-15, more if possible. Why? Because if you just look at the last 3-4 year period, that may have been an atypical period affected by a strong expansion, new technology, government regulation, a recession, war, or some other demand factors. You want to see how sales were affected over the long term, during "normal" periods of time. You don't want to create an overly optimistic forecast based on an unusually strong growth period that my not be repeatable, or the reverse.
Industry revenues are available from source such as the Census of Service Industries, Census of Retail Trade, Census of Wholesale Trade, Census of Manufacturing, Census of Transportation, Service Annual Survey, etc. Access any of these via www.census.gov. Or, your company may belong to a trade association that keeps track of annual industry sales. Or, just Google it.
As an example, here's some actual data for one industry: janitorial services. These are maintenance and cleaning services that service office and commercial buildings (not residences -- pest control, cleaning floors and carpets, trash removal, pressure washing, etc.). Sales nationwide for this industry were $37 billion in 2012.
Annual % change
2000 $24,593 (mill.)
2001 26,220 6.6 % (recession year)
2002 27,009 3.0
2003 28,725 6.3
2004 29,041 1.1
2005 29,779 2.5
2006 30,116 1.1
2007 33,021 9.6
2008 34,887 5.7 (recession year)
2009 32,591 -6.6
2010 33,565 3.0
2012 37,095 5.2 (avg per year for 2-yrs.)
Looking at this data above, we can calculate a 12-year average growth rate by dividing the 2012 value of revenues by 200 revenues. Revenues rose 50.8% over 12 years, so the average annual increase was 4.2%. That's about how much revenues will grow in this industry during a "normal" time period. However, when we look at the recession years, we see that this industry IS affected by economic downturns. For the recession of 2001, there was a lagged effect as sales dipped below the period average, gaining only 3.0% in 2002. In the more severe downturn of 2008 during the real estate crash, sales actually declined by 6.6% in 2009, and remained below the average growth rate in 2010.
A market or industry is either one of these three:\
Janitorial Services as an industry appears to be recession-affected. There are few markets or industries that are truly recession-proof. Some of these may include: defense contractors, many healthcare sectors, tax preparation, funeral services, food & beverage staples. Even in a recession, people have to eat, people die, and people get sick. But, markets and sectors that depend on consumer spending and disposable income (income after taxes) are a different story. These are things that can be postponed or eliminated when money gets tight--weight loss programs, spas, vacation travel, jewelry, restaurants/eating out, upscale clothing, casinos, for example. Some sectors may even be helped by recessions--debt collection agencies and pawn shops, for example.
So, to develop an accurate forecast for sales growth over the next 5 years, you should use the 10-15-year historical industry average and adjust it up or down based on the following questions:
- Will there likely be a recession during the next 5 years? Mild or severe?
- Will my industry develop any new breakthrough technologies that will boost demand?
- Are there competing technologies that will hurt our industry?
- Will there be any significant price inflation for our products or services?
- Will there be any new government regulations that will dampen growth?
Forecasting is not an exact science and even government and private sector economists will differ given the same information. But, you can usually get pretty close by considering the above factors. The same rationale can be used to forecast COMPANY sales. Just look at your internal revenue growth over the past 15 years, and consider the major factors affecting demand for your company's products.
Note: Marketdata includes 4-5-year forecasts in all of its market and industry reports, with the rationale and demand factors explained in detail. Learn more about our custom research and consulting services, and off-the-shelf market studies, at: marketdataenterprises.com.