How to Build Better Amazon Growth Forecasts
Forecasting has always been challenging for businesses. But it’s never been as challenging as it is today—especially for brands in the Sports & Outdoors sector. From economic uncertainty and supply chain disruptions to rapidly changing consumer preferences and increasing competition, there are so many more layers of complexity now versus a few years ago even.
Fortunately, there are ways to combat all these challenges. In this blog post, we share the four best practices that Brandrunners can use to more confidently build Amazon growth forecasts no matter the state of the retail environment.
1 - UNDERSTAND HOW AMAZON DIFFERS FROM B&M
There are many ways the Amazon business differs from the traditional brick-and-mortar (B&M) business. One way is in its many nuances. These nuances can impact growth, and should be considered when building Amazon growth forecasts. The nuances include:
ADVERTISING — ASSORTMENT — BUYBOX — CATALOG — COMPLIANCE REQUIREMENTS — CONTENT — IN-STOCK LEVELS
PRICE (AND PRICE MATCHING) — PRIME ELIGIBILITY — PROMOTIONS — RATINGS — RETAIL ARBITRAGE — REVIEWS
Another way Amazon differs from B&M is in how fast results can come. For example, while a new product launch may make a splash in B&M and serve as a significant tailwind for growth that quarter, the same launch on Amazon may take weeks or even months to establish history on Amazon, grow Amazon organic rank, and ultimately achieve meaningful sales.
The shelf on Amazon is different too, in that it’s unlimited. The upside is that there is always room for your next product. The downside is that your competitors have access to the unlimited shelf, too—and the barrier to entry for brands is lower on Amazon, which means they face more competition on the platform.
Also with Amazon, brands have more visibility into sell-through trends. We see best-in-class Brandrunners being acutely aware of sell-through—and aiming to stabilize it—rather than being only concerned about sell-in to B2B customers.
Sell-through reflects trends among the end consumer, which we believe is what business decisions should ultimately revolve around. Over-indexing to sell-in can cause “bullwhip effects” in the supply chain. Thus, we recommend Brandrunners keep both sell-through and sell-in in mind with regards to the forecasting process.
2 - start with a few key inputs
Now that you’re grounded in an understanding of the differences between Amazon and other parts of the retail business (in particular, B&M), let’s move forward with forecasting.
If all of the nuances listed above were used as inputs or assumptions to the forecast, it would quickly and significantly increase forecasting complexity and decrease forecast accuracy and reliability. That’s no good. What you want to do instead is use just a handful of critical inputs to build your forecast, and keep those levers at your disposal as the tools to help you achieve the forecast.
Here are the four key inputs we most commonly turn to when building forecasts with our brands:
TRAFFIC: How many consumers are coming to my product detail page(s)?
Your historical traffic data is the best place to start for this. From there, changes to traffic come primarily from swings in advertising spend (impacting your visibility on the search engine results page (SERP) driving traffic from competitors' pages to your own), or changes to consumer demand (with real-time consumer search data helping to inform).
Other drivers can be harder to forecast, such as changes to organic ranking (slower effects, harder to quantify) and off-Amazon traffic-driving efforts (typically hard to forecast). Therefore, use those activities as levers to pull rather than forecast assumptions. For new product launches, plan for a slow traffic build.
CONVERSION: How well can I convert the consumers that visit my product detail page(s)?
In most cases, historical conversion rates are a reliable input into forecasts. Brands can always work on improving conversion rates through initiatives such as content changes, generating positive ratings and reviews, and broad-based brand building. But those are the types of levers that build slowly and are difficult to quantify in a forecast. Conversion rates on new products likely start out lower than existing assortment given less robust ratings and reviews.
PRICE OR AOV: At what price are my customers converting?
Here is where we start getting to actual dollar figures in the forecast. If forecasting at the product level, use average price for this input. Be sure to keep in mind promotional activity and planned price increases, if applicable. If forecasting at the category or brand level, it may make more sense to use average order value (AOV) as the key input. Similar to the above inputs, historical data is the best starting place here, also factoring in any planned changes to promotions or price. Cross- and up-selling activities can be used as levers to help increase AOV over time.
BUYBOX: How much of sales are being captured by me or my authorized reseller?
The concept of the buybox comes from Amazon’s marketplace model and is one of the most meaningful nuances between Amazon and traditional B&M. Because there could be a number of third-party sellers offering your brand's products, every sale made on the platform does not necessarily get captured on your Amazon P&L. In nearly all cases, the buybox winner (see image below) captures the sale.
The buybox is algorithmically powered, primarily factoring in price (favoring the lower price for consumers) and fulfillment (favoring Prime delivery). The rate at which you or your authorized reseller achieve the buybox is your buybox rate. When forecasting, start by using historical buybox rates.
It's important to note that even if you didn't win the buybox on a given Amazon sale, the brand still made that sale somewhere (except for less common instances, such as shoplifted or counterfeit product).
For example, a distributor partner could have purchased from the brand and then sold to a gray market seller, or someone could have bought the product on sale off another retail shelf and then listed and sold that product through Amazon.
As it relates to forecasting, the issues are: 1) these types of sales often happen at a lower price; and 2) they create misleading internal P&Ls. For example, distribution partners offloading to the gray market will artificially inflate distributor sales while artificially deflating Amazon sales, which has implications for marketing funds, internal staffing, and more.
Thus, it's imperative for Brandrunners to be working towards a "clean" marketplace, which can require holistic promotional strategies and incentive structures, and legally-bound and enforced pricing and reselling policies. These types of actions will improve buybox over time and, in turn, your captured Amazon sales.
3 - trust in historical seasonality
In our experience with forecasting and executing the Amazon business alongside many Sports & Outdoor brands, historical seasonality tends to hold quite well. Thus, we recommend starting with a full-year forecast and then applying historical seasonality trends to help get to quarterly and monthly forecasts.
4 - build smart forecasts—and SET BIG GOALS
There can be a fine balance between smart forecasting and setting big goals. Given the forecast will ultimately drive inventory decisions, it’s important to not be overly aggressive. As an example, many brands and retailers saw consumer demand spike in 2021 and forecasted that the trend would stay steady through 2022. Those aggressive forecasts, coupled with limited visibility into a challenging supply chain environment, left some over-inventoried.
At the same time, leaders don’t want to forecast so conservatively that they put a ceiling on growth and demotivate their teams. Thus, we believe Brandrunners can have a smart forecast, and a separate, bigger goal to shoot for. When we work with brands in this manner, the forecast is what is likely to happen based on the key inputs covered above. We’ll then work together to solidify a bigger goal, along with a thoughtful plan to get to that goal, based on all of the levers brands have to pull on Amazon.
what to do after the forecast is built
Greater access to data and levers via the Amazon platform (compared to traditional B&M) means Brandrunners have a greater ability to actively work towards achieving their forecasts.
To take full advantage of those benefits, it’s important to regularly revisit your forecast, understand how you are tracking against it, and understand what may be driving any over- or under-performance relative to forecast. From there, you can open your toolbox of levers we covered above to make adjustments to the business that help meet (or exceed!) the forecast.
For example, Netrush does this exercise once weekly, at a minimum, to place dynamic purchase orders with our brand partners based on real-time data. Additionally, we revisit the forecast with Brandrunners on a monthly and quarterly basis. It’s important to regularly communicate cross-functionally and with external partners, especially when there is a large deviation from forecast or when any business action may significantly affect outcomes.
In the simplest example, production and supply chain teams need the latest and greatest forecast to ensure healthy inventory levels. On the flip side, if the supply chain runs into new delays or challenges that will impact in-stock levels, those need to be communicated back to the Amazon team so that forecasts can be adjusted accordingly, along with subsequent adjustments such as pulling back advertising spend.
B&M activities such as a large promotional event should be shared across channels as there are likely to be trickle-down effects on the Amazon business. Successful Brandrunners—and their brands—set themselves apart by being data-driven and fast-moving with a clear understanding of modern commerce growth levers, as well as leading cross-functional collaboration and communication throughout the organization.
HOW NETRUSH CAN HELP YOU FORECAST SMARTER
Netrush works hand-in-hand with Brandrunners to forecast and execute their Amazon business, leveraging our powerful data, our Sports & Outdoors category expertise, and our comprehensive operating system that seamlessly integrates sales, supply chain, advertising, insights, and more.
Netrush data and insights can help you forecast your Amazon business with more precision and confidence. From consumer search trends to market share data to growth benchmarking, we equip Sports & Outdoors Brandrunners with the insights they need.
To see these datasets at the category level or to explore a Netrush partnership, contact us.
ABOUT the authorMichael Cobb is Netrush’s Director of Financial Planning & Analysis. He joined Netrush in 2022 but has been leveraging his acute understanding of finance, data, and technology to help brands uncover opportunities and reach their goals for more than a decade. Connect with Michael.