How the ATAR Forecasting Model Works

 

What is the ATAR forecasting model?

The ATAR forecasting model is primarily designed to forecast sales and profit contribution of new products following its initial years of release/launch.

In most cases, in addition to achieving their strategic goals, firms will introduce new products to the marketplace in order to increase their market share, sales revenue, and overall profitability. Because of the significant time and financial commitment of new products, it is usually necessary to determine whether the initial investment costs will be recouped by future sales and profits.

Therefore, the ATAR forecasting model is used in marketing to help assess the potential profitability of new products – and this financial evaluation will be used (in most cases) in the final decision on whether or not to develop and launch the proposed new product.

What do the letters ATAR stand for in the new products forecast?

In this forecasting model, the letters represent:

  • A = Awareness = what proportion of the target market will become aware of the new product
  • T = Trial = what proportion of target market are likely to trial (either purchase or sample) the new product
  • A= Availability = what proportion of consumers will be able to find/access the product via retailers or by direct marketing channels
  • R = Rebuy (or repeat) = what proportion of customers, who trial the product at least once, will repeat purchase (rebuy) the product on a regular or occasional basis

How does the ATAR model work?

atar processIn simple terms, each of the above four components are expressed as a percentage which is then multiplied together – for an example please see this article on the ATAR formula. The multiplication of these four factors then derives a smaller percentage, which is the percentage of the overall target market (expressed in numbers of consumers or buying units) that will become part of the new product’s ongoing customer base.

For example, if the four ATAR components multiplied out to be 5%, then 5% of the target market would become regular or occasional customers of the new product.

What other information do I need to forecast sales and profits?

As the four ATAR components only work out the percentage of the target market to become customers, then you will need the following information:

  • size of the target market = number of consumers or buying units
  • the average purchase quantity per consumer during a period
  • the average price/cost or margin for each unit (product)
  • likely customer loyalty over time

These factors, in conjunction with the original ATAR forecasting factors, will help you determine:

  • size of the ongoing customer base over time
  • sales revenues over time
  • gross profit contribution over time (before and/or after promotional expenses)

Assessing financial viability using an ATAR forecast

If you are also interested in the marketing ROI of the new product, then you would also need to have information on the likely promotional spend over time, as well as the initial upfront research and development investment.

By combining these factors into the overall ATAR forecast and financial calculation, then you can determine financial viability, and likely profitability returns, and various other financial metrics.

Again, please review the information on the ATAR formula and how the free Excel template works.

It sounds complicated

If you are unfamiliar with financial forecasting, then any sales projection can be a little tricky at first. However, on this website there is a free Excel spreadsheet that allows you to run the ATAR forecast and its associated financial metrics easily and simply.

The hardest part is to come up with the initial estimates and assumptions for some of the factors. Provided that they are based on some logical experience or benchmark, then your ATAR sales and profit forecasts should be quite easy to utilize and incorporated into your analysis and reporting.

Is the ATAR suitable for all industries and firms?

Yes and no. The standard (all four components) ATAR forecasting model is primarily designed for firms/industries where each of these factors plays a role in marketing. However, this is not always the case.

The good news is that the ATAR model can be easily modified, as discussed and demonstrated in this article on ATAR business variations.