How to Evaluate a Licensee’s Forecast

Pete Canalichio explains how manufacturers build a forecast and what to look for in determining its validity. This video illustrates Step 5 of Pete’s 8-Step Brand Licensing Process [Getting Ready For The Draft – Segment 1]. You can view more of my videos on the Brand Licensing Process on my YouTube channel or on my videos page.

Transcript:

Hi, I’m Pete Canalichio, and welcome to the brand licensing pre-launch. You may recall in our fourth video, Hugh Simpson and I talked about getting ready for the draft. And now I’m not talking about the NFL or the NBA, but I’m actually talking about drafting your prospective licensees who’ve now made the cut. And the way you do that is to look at a couple of different things. The first one you want to look at is how well they’ve done on what we identify as the conservative business estimator. That’s a fancy word for how well they’ve done on their forecasting. So when you ask them to complete a forecast, you’re looking for them to do a number of things. The first one is to look at a three-year sales forecast by region, by channel, by retailer, by stock keeping unit, and to show you what kind of annual product innovate introductions and innovations you are going to be doing. Then you look at those sales projections, and you gauge the viability against what their capabilities are. And then you know whether or not they’re going to be successful. So if we dive into this a little bit, you look at the spreadsheet, and the first thing you look at is how many doors–or in other words–how many different stores within a particular retailer they’re going to enter. So if you’re talking about, for example, Target–and there’s let’s just say 2000 potential opportunities–how many of these do they think they’re actually going to be able to get into. Then you look at what the product’s stock keeping unit is. So let’s give an example where you’re talking about closet accessories. Are we talking about over the door racks? Are we talking about items that will hang from the the rod? What is a stock keeping unit specifically referencing? Then you look at the unit price, and that’s the wholesale price at which the licensee sells the product to the retailer. The next step you’re going to ask the prospective licensee to complete is what the units sold are, so that’s the estimated number of licensed units of the product they’re going to sell. And then they’re going to look at the estimated wholesale sales, which is really just the number of units sold times the unit sale price. Once you have that information, you can look at the projected percentage of the business and see how that stock keeping unit compares to all the other stock keeping unit skating to the total number of sales that they’re projecting. This is really important because what you’re asking that manufacturer to do is come up with a bottom to top strategy for how they’re going to get to the market with their product, with your brand on it, and if they know that and have done a great job, you’ll be able to discern that very quickly. And if they haven’t, you’ll know that also. So when you’re scouting for playmakers, this is one key important piece you won’t want to miss.