In plain words
Forecast profit is what an offer is expected to earn, computed from what it promises to charge and what the order will cost. It needs no orders, so it exists the moment an offer is written.
It is a statement of intent. It says what each option keeps if the cart charges what the offer says and costs are what you entered. Realized profit then says what happened, and the difference between the two is where the learning is.
Formula
- Forecast profit per order = promised charge + shipping charged − costs at today's rates − refund reserve
- Forecast profit per visitor = Σ (each option's forecast profit × its conversion rate)
Worked example
Before a single order, the engine forecasts the coffee offer's options: $15.36 for the single bag, $48.06 for three bags, and $3.79 then $11.68 for a subscription's first order and each renewal.
At 3.0% conversion the single bag is forecast to earn $0.46 per visitor. Each figure carries a 5% refund reserve that real orders will replace with their actual refunds.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
A forecast is not a prediction of sales
It says what an order earns if it happens, not how many will. Conversion in a forecast is the rate you observed or assumed. Whether a new offer converts better is what a split test measures.
Using it
Read the forecast before you publish an offer, option by option, and look for the one that loses money. After launch, compare forecast and realized for the same version and the same orders. A gap usually has one of three causes: refunds above the reserve, a cost that was missing or wrong, or a cart that did not charge what the offer promised.
In Offer Suite
Offer Suite computes a forecast for every offer version from the price each option promises and the costs in effect, with the same engine function that costs real orders. An order whose cart kept its promise realizes the forecast exactly, before the refund reserve.
Source: Offer Suite's margin engine.