Let's call it Sales Forecasting - but it's not really.

[Jeff Kershner]

Our good friend and long time community member @jonberna published an article over on the blog today, titled "These 3 Basic Elements will have you TRUSTING your Dealer Forecasting". No more gut decisions when forecasting monthly sales (and service) goals.

A monthly sales goal can be used as a great motivational tool for the sales team, but maybe upper management should consider a different method to plan for their next month.

What measurements do you use to forecast your monthly sales?

 

[Alex Snyder]

Forecasting is synonymous with the way many dealers use the word "projections."

And it sure ain't easy to nail. Like the weather it is very difficult to forecast beyond the next few days. What always bugged me were the annual projections that came down, somewhere in the first quarter, from on high. These became the criteria for pay plans throughout the year and I could never fully comprehend how anyone could formulate exact numbers a year out. I always liked the statement that came with them "don't worry sales team we will change these numbers later in the year because they're just guidelines" .....that shit never changed.

By the way, this isn't just common business practice at car dealerships.

The practice is performed because budgeting is done once a year. Once the annual budget is in place it is impossible to pull the spent dollars back when fourth quarter sales aren't stacking up. That's why that shit never changed.

So, I have a question: why do an annual budget?

 

[jon.berna]

The problem with annual budgets, especially in larger organizations is the stress it places on mid-level managers. Their productivity this month and next will go down as they are focused on creating targets that will be accepted by management's goldilock zone. The justification to involve the managers is to create buy-in to the goals and shared accountability to their results. Unfortunately it can become nothing more than a way for the upper-management to place the blame and hurt current business.

The forecasting over 30 days becomes difficult for a number of reasons.

1. If you rely on a model you start forecasting a forecast, this can easily veer off track - especially if you were wrong initially
2. When your time period is that long you will have lurking variables that will impact your results that you can't plan for in a specific month.

• A new same-make store opening up in your AOR, a key manager leaving, supply constraint

3. Large industry wide or OEM forecasts aren't necessarily relevant to an individual dealer, plus they take national data into account that are largely unavailable at a local level, or hard to get for 1 organization. These include things like:

• The ability for customers to pay including, unemployment, disposable income and demographic data
• Availability of credit, interest rates and consumer debt
• Consumer motivation, gas prices, etc.

I think the best approach for annual forecasting for an individual dealership is to follow these best practices:

1. Don't stress out the managers that are making the cash register ring. This causes a loss in sales in the present and will cause resentment in the future.
2. Understand you don't have the same tools as the OEMs so stop trying to copy them.
3. Take a blended approach with a seasonally adjusted monthly sales forecast and a strategy based on registrations by zip code
4. Focus your annual planning on the variables that drive the results more than setting a made-up target. Understand if you get ahead of your target or behind it your team can lose motivation...

So should you do them, yes as long as they are for the right reasons.

 

[joe.pistell]

Bad Manager

 

[joe.pistell]

Good Manager

https://explorable.com/how-does-stress-affect-performance

 

[Jeff Kershner]

"don't worry sales team we will change these numbers later in the year because they're just guidelines"

I've heard that statement before. Verbatim.

 

[Tallcool1]

The problem with annual budgets, especially in larger organizations is the stress it places on mid-level managers. Their productivity this month and next will go down as they are focused on creating targets that will be accepted by management's goldilock zone. The justification to involve the managers is to create buy-in to the goals and shared accountability to their results. Unfortunately it can become nothing more than a way for the upper-management to place the blame and hurt current business.

The forecasting over 30 days becomes difficult for a number of reasons.

1. If you rely on a model you start forecasting a forecast, this can easily veer off track - especially if you were wrong initially
2. When your time period is that long you will have lurking variables that will impact your results that you can't plan for in a specific month.

• A new same-make store opening up in your AOR, a key manager leaving, supply constraint

3. Large industry wide or OEM forecasts aren't necessarily relevant to an individual dealer, plus they take national data into account that are largely unavailable at a local level, or hard to get for 1 organization. These include things like:

• The ability for customers to pay including, unemployment, disposable income and demographic data
• Availability of credit, interest rates and consumer debt
• Consumer motivation, gas prices, etc.

I think the best approach for annual forecasting for an individual dealership is to follow these best practices:

1. Don't stress out the managers that are making the cash register ring. This causes a loss in sales in the present and will cause resentment in the future.
2. Understand you don't have the same tools as the OEMs so stop trying to copy them.
3. Take a blended approach with a seasonally adjusted monthly sales forecast and a strategy based on registrations by zip code
4. Focus your annual planning on the variables that drive the results more than setting a made-up target. Understand if you get ahead of your target or behind it your team can lose motivation...

So should you do them, yes as long as they are for the right reasons.

With all due respect @jonberna , the REAL problem with annual budgets is that they are a fucking waste of time. Everyone's time.

In today's industry, anything more than a quarterly sales forecast is nothing more than speculation at best.

Annual forecasting used to mean something and could be done with a fairly reasonable degree of accuracy. We had to have the inventory to sell the inventory, and inventory acquisition was something that had to be planned for!

Today, we can all react so much faster. 30 day turn on Used Inventory, 60 days on New, 12-15 turns a year on parts (at cost), promotional campaigns done by the end of the day, and the list goes on. The efficiency of the dealership today is in a completely different world than it was 20 years ago.

To answer your question @Alex Snyder, there is no reason to do annual forecasting. Just my opinion.

I was a CFO for a dealer group for nearly 20 years, and we spent literally WEEKS doing this annual forecasting. I used to joke that it was a lot like a "father sending their naughty son out into the woods to cut a switch for their whipping".

 

[jon.berna]

@Tallcool1, we are actually in agreement - the article that this thread references was about creating a monthly forecast. Hell, we don't even do annual forecasts for our dealers! I instead wanted to give a framework for how they could be done, with a clear caveat they have a number of negative byproducts associated with them.

 

[Tallcool1]

@jonberna , your post actually supports your response. I could tell you weren't much of a fan!

 

[joe.pistell]

"The best way to predict the future is to create it."
--Peter Drucker