How Are You Forecasting? With Voodoo or Data?

It’s that time of year again when we begin the painful process of trying to figure out the future of our business. When I have the opportunity to speak with dealers about this subject, I like to tell them there are two ways to go about the process. 1) You can do it the old school “voodoo magic” way, or 2) you can do it the new school “data-based” way. I ask this question because it forces you to ask yourself about your own forecasting process. How many of my forecasting decisions are based on tracked data, and how many decisions are based on voodoo guesswork? Are there any processes of forecasting out there that are better for showcasing what our business will look like next year as it pertains to sales, expenses, profits, and losses? Can we predict the future with any confidence?

Before you break out your crystal ball and voodoo doll or bring in teams of analysts to pour over volumes of data, it’s critical to ask yourself one simple question.

What are you really hoping to accomplish with your forecast?

The most common mistakes I hear from this question are the responses based on fulfilling a requirement or coming up with a number to use in the future to determine success. That is not the goal of this process. First and foremost, a forecast should be the basis for a successful long-term strategy. It is from this strategy that you can determine the most influential ways to focus your business’ time, effort, and resources. Your forecast should be the reference point to base every decision. Obviously, the more accurate your business forecast is, the more effective the strategies and processes you deploy will be. The more effective you are with your resources, the greater your competitive advantage.

Do You Use a Crystal Ball or Data?

The unfortunate truth about forecasting is that you are likely going to be a bit of both. We simply can’t accurately track and predict everything because your forecast requires looking at both qualitative and quantitative information. It is from both areas that you will get the best perspective of where the industry is today, where it is headed, and how your dealership is positioned to succeed or fail.

Qualitative Data

As it pertains to qualitative data, this is where your time in the car business becomes invaluable. The first step in this process should be to write down how you view your dealership, your market, your OEM, and the industry as a whole. A few key questions to ask yourself:

• What are big things coming in the industry?
• What are other dealers saying in your 20 Group?
• What are the issues being raised in trade publications?
• What are the current benchmarks that are relevant to your dealership, and how are these benchmarks trending?
• What are your customers doing and feeling?
• Are the OEMs you represent staying competitive?

Quantitative Data

While quantitative data can come from external sources outside of your dealership, most come from your internal sources. The goal of this forecasting process is to look at your past numbers and try to identify cause and effect relationships that can be exploited to benefit the business. Great forecasts are dependent on great data. The data you use must be timely, accurate, consistent, and applicable to your business. The more specific to your dealership this data can be, the more meaningful it becomes in your forecast. A few key questions to ask:

• Where do you see your dealership trending for good (or bad) in the key metrics that drive your success?
• Are there any correlations to these trends?
• What is impacting these trends in your daily operations?
• Does your historical performance support (or discredit) what you see from your OEM’s performance?
• How does your performance stack up to the benchmarks most meaningful to your business?

It is a ton of work! And despite your best efforts, the future is still as unpredictable as ever. There are just too many variables that are outside your direct control. However, the insights you can gain from going through the process of forecasting can make all the difference in giving you the competitive advantage! 

Your Future Forecast

As you begin the process of forecasting for next year, I hope that you will view the process as a quest for insights and knowledge specific to your dealership and leadership team. Know what your meaningful benchmarks are, and how your performance stacks up to each of these. Make sure that your dealership’s data is clear, concise, and accurate. Ensure that your leadership team uses critical metrics to manage their departments everyday real time. Stay on top of how all the factors that impact your forecast are impacting your store—this isn’t something that should happen just once a year, but every month. Otherwise, you are making decisions on outdated information.

If you don’t feel like there are enough hours in the day to make this happen, then our software solutions team would be happy to show you more efficient ways to manage your data and key metrics. axcessa is a cloud-based application that can not only help you with your forecasting, but benefit your entire dealership with real-time reporting access. To learn more, or to schedule a free demo, you can do so here.