The Forecasting Framework Every Brand Needs Before Q4

[00:00:00] Richard Gaffin: Hey folks, welcome to the Ecommerce Playbook Podcast. I'm your host, Richard Gaffin, director of Digital Product Strategy here at Common Thread Collective. And I'm joined today by Mr. Taylor Holiday, as I often am. I'm gonna change it to often from always joined by Taylor to talk a little bit about a little bit more about forecasting.

Taylor what's going on, man?

[00:00:19] Taylor Holiday: Yeah, I mean it, it is one of the moments of the year where we have to make a bunch of big decisions about a critical period of time in the future,

[00:00:25] Richard Gaffin: Yeah.

[00:00:26] Taylor Holiday: a exercise in planning and forecasting. And so I think we want to revisit these moments when they come up. It'll happen again towards the end of the year. Usually. There's sort of like a midway mark where you are revisiting how you've done to budget so far. But right now I ahead of Q4, whether it's a key inventory decision setting, a budget, deciding on investment thresholds, dealing with tariffs, there's all sorts of things that are causing people to take a step back and go. What's about to happen in this key moment of the year? And I, I, I've just heard the, the conversation come up a lot today. We're gonna play a clip in a second. If you hang around from the Operators podcast that was out today where the first half of it was all about planning.

Even amongst those, that group of guys who I think are all basically all incredible operators, if you go listen to the episode, you'll hear just like lots of confusion and figuring it out.

And still, I think we could be better at this.

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Mm-hmm.

[00:01:56] Taylor Holiday: That's certainly true for all of us, but, but I think this is something that we have spent so much time and energy and thought around that. I'd like to believe that just based on the disproportionate amount of reps that we get, that we've developed a process that we find to be pretty useful that's producing pretty accurate outcomes for our customers. I wanna talk a little bit about what makes it work. And we're gonna play a couple clips from. talk about some of our results from July and share a little bit about some stuff that I think you'll take away as a listener as gems that you can either apply to your planning process or will make you want to reach out and chat with us about how we can help you with that planning process.

[00:02:32] Richard Gaffin: That's right. And speaking of which, let's just say upfront again, we're still giving away, giving away free spend at a MER reports for certain eight, nine figure businesses, which again, is sort of like one of the initial phases of our forecasting process. We would love to do that for you. If this is something that you struggle with.

So. Without further ado, like you had mentioned again sort of the way that we get reps with our forecasting. I think case in point is one thing we want to kind of kick it off with is going over our report card. So we've done, Taylor and I have done an episode on this occasionally over the last few months.

We're a little bit late on this one, but we have our July data in now that we're, we're midway through August, we have our July data in and we can report that on. Spend, spend in revenue across all of our clients. Essentially, we beat our revenue forecast by 1.7%, and we missed our spend forecast slightly by 5.93%, which all things considered is ba.

Essentially means we got pretty close. Basically hit our forecast on both of those metrics.

[00:03:33] Taylor Holiday: 10.

[00:03:34] Richard Gaffin: Yep.

[00:03:34] Taylor Holiday: us at about plus 10% on contribution margin. So you beat revenue on slightly less spend.

[00:03:39] Richard Gaffin: Mm-hmm.

[00:03:40] Taylor Holiday: con, the constant pain in my side. If you live in the halls of CTC, I'm hammering us on spending more money because we just have a conservative bent towards really trying to be disciplined about the dollar allocation.

And that can lead us to. Underestimating opportunities, and we're still learning to operationalize and trust some of the

[00:03:55] Richard Gaffin: Mm-hmm.

[00:03:56] Taylor Holiday: around incrementality and things. So, good results overall for sure. But I think that we wanna continue to press into that spend deficit for sure. But but yeah, again, across, over this will, this will end up more north of, it'll probably be around 3 billion GMVI think on this data set that we're talking to.

So we're talking about. hundreds of millions of dollars every month that we're forecasting across lots of brands. And so you do get a really deep set of repetitions of, okay, in each case, when we were wrong, what went wrong, and when we were right. Why? And you can take it and reflect and learn. We have different people with different outcomes at different levels and get to get a sense of who is. Really getting after it and who is being disciplined and where there are some gaps still to be filled. So there's just, and this is months and months and months and months and months and months. Months for years and years and years and years and years of doing this exercise.

[00:04:44] Richard Gaffin: Yeah. And, and, and yeah, the point being that we've gotten good at this our, our forecasts generally speaking are accurate. And I think like one thing that the, this clip that we kind of listen to and we're going to listen to brought up is that this remains a mysterious process for a lot of people, even for like the smartest people in the game.

So why don't we play that clip right now

[00:05:04] Taylor Holiday: Yep.

[00:05:04] Richard Gaffin: we'll listen to it and then we'll talk about it afterwards.

[00:05:06] Taylor Holiday: Lemme set up just a little

[00:05:07] Richard Gaffin: Okay? Go for it.

[00:05:08] Taylor Holiday: morning's episode you have Sean Frank from Ridge talking about his financial budgeting and planning process. They all went through it. You heard Jason talk about it. You had Matt talk about it. You had Mike all talk about it. So I'd go listen to all of them, but I think Sean hits on something here that is closest to what we believe about what this process entails that we're gonna unpack.

Stack that against what do we think sales are gonna be, right. So, um, that's just me and Connor work on that project. So, you know, we, we tried to bring in a finance team. We tried to have finance do it, and they just had such a worse understanding of our business. Very smart people. Very way better at financial planning.

Had a way better. They're like, okay, we're gonna look at website visitors. This is what we think rep will convert at. We don't do it that way. We're like, what was last year? Sales? Let's go month by month, week by week. And be like, what did we get right? What did we get wrong? What did we learn? Where do we think there's like still meat left?

Um, to actually like extract from the bone? So we do that together. We, we'll do that in December, probably the last two weeks of the year. Connor, probably he'll be in LA by that point. So we'll be hanging out every day just doing that. Um. Then we try to find reasons to grow. Right? And that's like the big thing to take away from this conversation is that left static, your business will stay the same or shrink.

Right? So we've been able to grow at Ridge because we, our MER went down every year, right? And the only years where it went up, there's probably two years in company history where MER went up. It was because we launched a new product category. That was net new to the business, right? That could grow revenue out of higher MER.

So we have to look at reasons to grow. If you're like, I'm gonna do the same thing and I'm gonna spend less money on ads, but revenue's gonna grow, that does not happen, right? Like, it's like there has to be a new reason for people to come in. So, so me and him work on that together .

[00:06:55] Richard Gaffin: , what were the main takeaways for you, Taylor?

[00:06:57] Taylor Holiday: So, so I love a few things about this. One in very, Sean does this like, funny deferential slash slightly condescending thing where he says, yeah, we brought in these really smart finance guys and then dismissed everything that they said because they didn't know what they were doing. But, but this is actually my experience of how finance approaches this problem, right?

Which is that. Finance people generally have skill sets that are bent towards Excel and modeling. And they look to extrapolate trends in data, whether that's through building models like spending a MER or retention curves or in his example, the most common thing we see, which I think is the absolute worst version of forecasting, is trend-based traffic analysis.

[00:07:37] Richard Gaffin: Mm-hmm.

[00:07:38] Taylor Holiday: This channel had this many visits and this conversion rate at this OAOV. And so if we grow traffic by this percent in the like, and so it's this traffic based bottoms up trend analysis. That tends to be a very limited view where that that exercise is useful in so much that the future is like the past because you are taking the past and you are drawing a representation or a trend towards how it will be in the future.

But here's what we all know in the last five years of e-commerce has taught us this well, that the future is almost never like the past in, in, as an exact exercise. But is my experience of how financial people approach this approach, this problem in part because it's the part that they control.

It's the world they understand and know. And so people approach. Things from their area of deepest expertise or understanding. Sean does, because he is sort of an entrepreneur, is he goes back to his marketing guy in this example and he says, yeah, and then me and Connor get together and go, well, what will we need to actually do? grow, what are gonna be the actions or

[00:08:31] Richard Gaffin: Mm-hmm.

[00:08:32] Taylor Holiday: or the things that we're gonna create that drive the outcomes that we want? Because what he understands, and this is, this is what we believe we have married uniquely in our planning process at CTC, is that the qualitative planning, we, we would use the marketing calendar as the reference point for the actions of building units of growth.

These are campaigns, product launches, promotions, influencer. New ad campaign launches, emails that you send. These are all the actions that will actually produce revenue in the future. If you don't do these things last year's, historical performance will be irrelevant.

[00:09:07] Richard Gaffin: Mm-hmm.

[00:09:07] Taylor Holiday: And so you have to then take the qualitative plan of the marketing calendar, fill it with all of the things that you plan to do, the new products that you plan to launch, all of the things that you're going to action against. Marry it with the trends of the historical data, models, the spend in A MER, and then we even build a third model on top of it, which we call the event effect model, where you actually analyze the impact of your, these marketing actions so that you can begin to understand, okay, well what if I do launch a promotion?

What will happen, what, what happens when I do send an email? But what I love in this clip is, is Sean is, is illustrating what is really the point. Is that a forecast is an exercise that comes out of the marketing team or the product team, not outta the finance team.

[00:09:48] Richard Gaffin: Mm-hmm.

[00:09:49] Taylor Holiday: to be. Now, it's not to say that both can't provide insight, the reality is, is that the future is made up of actions that you have to decide to take. Lemme say this again. The future is made up of actions that you have to decide to take. They are not set in stone. They are not just going to happen. You have to make them. And that I think, is really the key of what we have discovered, is that if we just do a trend based on your forecast, and then that promotion that you had planned to launch on the 20th doesn't happen. There is no right forecast. So, I'm gonna stop there 'cause this brings us to the third leg of the stool. So you have the, the, the qualit or the quantitative modeling, the qualitative planning, and then there's a third leg that's really important that I'm gonna talk about in a second, but I'm gonna stop there as a reflection on the clip.

[00:10:32] Richard Gaffin: Yeah. Well, I, I, I, real quick, like one, one thing that I wanted to pull out from it, 'cause I think it's like a really, it's really well stated by Sean here, which is when he talks about his his process of quote unquote forecasting with Connor, he's like, okay what was last year's sales? Let's go month by month, week by week, and be like, what did we get right?

What did we get wrong? What did we learn? And I think that's like a much better way of going about that. It's not about prediction, it's about seeing what happened and seeing what could have gone better, and then attempting to take those actions in the future as opposed to just simple prediction. It's, it's not that.

It's basically building yourself a roadmap of action. Right?

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[00:12:01] Taylor Holiday: Right, and, and even inherent in that is this idea of. Week by week, day by day, month

[00:12:05] Richard Gaffin: Yeah.

[00:12:06] Taylor Holiday: What did we do on that Thursday in September that created that big spike? that's cool. Could we do that again? Oh, no. That was a momentary thing that was related to the Stanley, like in the ex in, in the, in the metaphor, Mike Beckham talks about how they missed their January comp this year, and at first he was like so worried about why, and then he realized that in January of 2024, it was the big Stanley water bottle viral moment that lifted the whole category.

And I go, man, for somebody like Mike, like. How did you not go back to January, 2024 and go, why was this so good? Will that happen again? No, but, but what it's inherent is that is this idea that you're just trending. You go, oh, January was this understanding day by day, week by week, what was the impetus?

What was the action? Is that replicable? Will it exist again? Is it gonna change What is different than, and our dataset, it really in, in these cases, for many of these businesses we're talking, are still really small. Was subject to massive volatility and change over time. And

[00:13:01] Richard Gaffin: Mm-hmm.

[00:13:01] Taylor Holiday: idea that there's this very consistent pattern of behavior that we can use without doing this level of analysis is just not true.

[00:13:08] Richard Gaffin: Right. There's definitely, and we've, we've mentioned this on the pod before for sure, but there's definitely like a psychological issue here where people treat forecasting like, like predicting the weather or something like that. As if that there, as if there was nothing that we had any control over a and b as if like there weren't human beings on the other side making choices that are kind of pretty obvious when you go back and kind of look at the data and look at these things that happen.

Yeah.

[00:13:31] Taylor Holiday: choices. And, and that's the thing is that the reason we can't just model this is 'cause it's not a random number generating machine that has some inherent underlying algorithm that outputs the, the, the. The, the results, like there are people making decisions, turning budgets on and off, launching campaigns, sending emails, influencers making posts, people saying things, PR articles being published, all sorts of cultural undertones leading to these realities that you have to interact with in order to do this well.

So, so there, there's just this beautiful, I think, marriage between. Not dismissing the finance people and saying that you have no role in this because we are sitting here at the same time saying, we're gonna build you to spend an A MER model.

[00:14:09] Richard Gaffin: Mm-hmm.

[00:14:09] Taylor Holiday: but what we do is we don't stop there. We don't start stop at the cohort specific retention model.

The third step of our process is build the mal marketing calendar, build the event effect model. it to inform the beginning point of your spend, ar spend an A MER model. If we go, Hey, this is what it says now, but then we added this really cool new product launch, well that's gonna affect the expectation of the model because that future plan we know has an underlying potential value that will dis, that will affect and disassociate from the historical data.

[00:14:44] Richard Gaffin: All right, so let's let's move on to this this third leg of the chair. So tell me a little bit about this Taylor.

[00:14:49] Taylor Holiday: So I've, you've listened to me at all, I hope you've heard me use these phrase, I'm being reminded in this moment about how. Few people have actually heard me say the things I feel like I've said many times. So I, I we're, we're gonna be revisiting a lot of some content that if you've been listening for a while, settle up 'cause we're going back to it.

But it's this phrase that great forecasting is an exercise in execution more than it is in modeling. so the third stage of this is a bunch of people who have to lock arms with clarity of their role in the plan and execute it well. Okay, the, so the third leg is execution. So there's great quantitative planning, there's great qualitative planning, and then there's great execution. All three of these things are how you deliver accurate forecasts. Okay? It's not just the planning process. And so on the execution side, what you have to be able to do to make a plan operational is it can't just be a number, okay? It has to be broken down into a set of corresponding actions for every team member, every day that they have to participate in to deliver that result. And it has to give them, you have to have the indicators that give you visibility to when you're on or off track, so they can course correct very quickly. Because the way you get to the, the result is not a straight line. It's tacking back and forth between too much, too little, too much, too little, just right, just right, just right.

Too little, too much, too little, too little, too much. And that visibility is the win that tacks your sale back and forth to stay on course.

[00:16:12] Richard Gaffin: Mm-hmm.

[00:16:13] Taylor Holiday: so it is so important. That the execution is actually thought of as a part of accurate forecasting. And this is where I think these things get dissociated as if there's a plan that was or wasn't right, and then there's execution that was good or bad.

And sometimes the execution people will turn around and go like, well, the plan was bad.

[00:16:32] Richard Gaffin: Mm-hmm.

[00:16:32] Taylor Holiday: well, hold on a second. could your execution be disassociated from the plan? I don't understand. You should be executing the plan, and this is like when I even, even when I see this deficit in spend, what frustrates me so much is that like what that means is some human made a choice

[00:16:46] Richard Gaffin: Mm-hmm.

[00:16:47] Taylor Holiday: that was

[00:16:47] Richard Gaffin: Mm-hmm.

[00:17:05] Taylor Holiday: and, and ownership of the plan itself is because you are putting your name on it.

[00:17:10] Richard Gaffin: Mm-hmm.

[00:17:10] Taylor Holiday: I will do this. Why didn't you do it? And I don't wanna hear the 75 excuses why, but you said, in light of all the things you knew and could consider you were gonna deliver this number. Go and make it happen.

[00:17:20] Richard Gaffin: Right. Yeah. I mean, what you're describing is like, is ownership of the number, which I think is like the fundamental reason that it's so important to have the executor and the planner be the same person, or at least be in a tight team because of, of course, like the thing that you hear across many businesses is the finance team said this.

The marketing team was like, we can't do that. But they didn't feel particularly empowered to say to the finance team or the CEO or whatever, big boss was kind of sending this number down that, oh, we can't actually make this happen. 'cause on the ground we understand that this isn't gonna work, but the powers that be are telling us like we have to.

Right? And then it creates this disconnect, and then plans are missed and forecasts are broke, whatever the case may be. Right? And so what we're talking about is, is giving ownership of the number to the people who are actually going out and trying to get that number right.

[00:18:03] Taylor Holiday: That's right. So, so exactly and, and so when you bring all this together, what you need is like really smart data, people doing quantitative modeling,

[00:18:09] Richard Gaffin: Mm-hmm.

[00:18:10] Taylor Holiday: really cool ways to do that in some of the, we think cut most cutting edge models. our industry to help you start a baseline for extrapolating what has been true so far, and this is like what we say, what is likely to occur if you were to continue on the current path, then you need like really detailed, thoughtful, qualitative planning about your marketing calendar in the future and as far out as you possibly can, as intimately connected to the product planning and promotion and creative and everything that you think is going to occur in a month.

I mean, down to every email you're gonna send every. Ad you're gonna launch as much detail as possible about the actions you're gonna take in the future and as far out as you're able to plan them, and the best brands we have. So this is a good baseline expectation. How far out should you be planned? best brand we have that does this, the best that we've been partners with Long, you've heard me talk about them all. And Claire and the team at Born Tive deserve credit for this. They have 2026 planned.

[00:18:58] Richard Gaffin: Wow.

[00:18:58] Taylor Holiday: I'm, I'm dead serious. All the marketing campaigns, every product launched, the emails that like it's planned. Now, will it be revised along the way? Yes. But this is a brand that launches tons of new collections and product and promotion has to plan.

Inventory has to go out into the future, and they're planned. And so that's the, that's the bar. Can you get a year out in this? heard Sean say it in this, if you listen to this episode that like Yeti has 2030 product development plans done and that that's true, this is what happens. And so if you as an organization, don't find yourself widening the distance on your planning, over time you've got a problem.

You're stuck in some sort of loop that needs to be revised because you're not getting out in front of it and you need to interject some longer term planning into your, to your workflow. But once that that's in place, then you need the tooling. And this is where stats, I think is really a uniquely designed tool that's built around this.

It's a system for tying together planning and execution in a way that gives every team member, so when I say team member, I mean your media buyer, your creative your creative team, your email and SMS team, your head of growth, your head of finance, all the ability to track within their individual domain contribution margin, email revenue. Asked for a specific channel, all the different indicators that ladder up to the overall corporate goal. They can see exactly where they are every day and there's an expectation of what they're supposed to do every day. And there's an ability to see if they're on or off track that's shared organizationally so that we all know, okay, we've, we're light on email revenue.

That email we thought was gonna crush on the second, didn't. We need to adjust course, send another email, revise it an opportunity, do a resend, find a segment that we can extract more value out of, because we don't just get to say, oh, it missed. The only thing that's valuable understanding that you missed is so that you can go and make it right. And that is how you accurately forecast.

[00:20:43] Richard Gaffin: Sorry. One thing that I did, I did wanna touch on, because we've mentioned it a couple times, but the core of, of, or the, the beginning of our process here is the spend an A MER model, which of course is data modeling, trend forecasting, essentially. So talk to us about like what is the role of that in this, right?

Why is it necessary to have this sort of accurate kind of forecasting model at the basis

[00:21:07] Taylor Holiday: It's

[00:21:07] Richard Gaffin: I.

[00:21:08] Taylor Holiday: There is some questions that you are really subject to bias about. Okay. So, so as an example how much money can you spend at what profitability level next month? Answering that question as a starting point that says, alright, well how much have I been able to spend at different inter, at different efficiency levels in the past is a very good starting point for assessing the question.

[00:21:32] Richard Gaffin: Mm-hmm.

[00:21:32] Taylor Holiday: the totality of it. So when I say the starting point, what do I mean? Right now, everybody is facing likely an underlying change in their cost of goods related to tariffs. Maybe not everybody, but a lot of people. As a result, it is likely true that your efficiency targets are changing. Now, maybe some of this you're passing on cost to the customer, but the reality is you're not gonna be able to pass a hundred percent of that cost onto the customer, most likely. So suddenly, your ROAS target is different than it has been historically. So now you have to look out and you go, well, how much am I gonna be able to spend this level? And this is where a spend in a MER model can help you get a historical understanding of in the month of September, based on how you've trended across all of these exercises, what is like the likely band of expected performance for your spend at that efficiency level? And because it's a novel one, it's a new one that you've never done before, you can't just go, well, what did I spend last month? You need to know that curve. And so this gives you a starting point for that and allows us to sort of help you answer a really important question. Now, the next question goes to the qualitative planning.

Well, what are we going to do? The same or different than we've done in the past that would allow us to break the model or potentially underperform the model. So it's important to make considerations of, oh shit, we're out of stock on our two best skews. then it's likely that you're gonna underperform the model.

'cause the model can't see that without

[00:22:55] Richard Gaffin: Mm-hmm.

[00:22:55] Taylor Holiday: So these are the things where you use it as a starting point. You have a qualitative layer of discussion that leads to a formalized decision and plan that allows you to be more accurate, more often.

[00:23:04] Richard Gaffin: Yeah. Okay, so I think let's, let's then. Kind of double back to, or, or rather move on to the, the question that we always like to ask during these, which is like, what is, what's like the one tactical takeaway from this? Like, what, what is the thing that you can do beyond obviously hitting us up to may build a, spend an A MER report for you?

What's like the thing that you can adjust with your own reports of forecasting right now that would make the most impact?

[00:23:28] Taylor Holiday: Bring the marketing calendar into the process, however you're currently forecasting. I would challenge you and it's, it's even a worthwhile exercise to go back and build out a two year version in as detail of a way as you can about what your historical marketing activities have been. So this is like if you wanted to hire someone to do a project for you, if have someone come in, work with your team to build out. The last two years, every day, what have we done? What promotions did we run? What was the sale? What influencer drops happened, what product releases, what emails did we send? And have that as a baseline that you can then build off of going forward and start to see how far out in front of it you can plan.

And when you go into the room to set the budget, whether it's for next month or next year, bring it with you. And then ask yourself, okay, what is different or the same this year? therefore, how does that affect whatever trend or expectation I have? Will that promotion that we run every January 2nd, are we doing it again? Is it the same offer? Is it a different offer? How will that perform relative to where we're at? Oh, that product launch we had February 3rd of last year. We don't have one this year. Okay. Shit, we can't expect that February days to be as good. Like bring it with you, bring the qualitative POV. Into the financial portion of the conversation force whoever's coming from the marketing side to have it built out as in depth as possible.

Understanding entirely that it is subject to change, but it is a starting point for the discussion that will anchor the behavioral patterns and project management of the entire organization.

[00:24:55] Richard Gaffin: That's right. Alright folks, well if you want us to begin this process for you to help build the spin at a MER report for you, we're giving away for free to certain eight nine figure brands. Hit us up, come through our code.com, hit the highest button, let us know that you wanna chat. We would love to talk to you.

But yeah, anything else you wanna hit on this Taylor?

[00:25:12] Taylor Holiday: No, I'm, I'm coming for y'all. I'm, I'm back in, I'm back in my Bridges mindset. I'm, I'm reminded of like. This, I, we're not done with this material. I, I, I can't, the amount of confusion and complexity I'm encountering around some of these issues inside of organizations, I'm just reminded again, I didn't solve it.

I didn't solve marketing and finance connection forever. It's still a major issue and we wanna help continue to lean in because we think it's a really important way that businesses improve and get better at what they're trying to produce. So, appreciate y'all.

[00:25:39] Richard Gaffin: That's right, folks. All right, we'll talk to you next week. Thanks for listening to y'all. See ya.