Nov. 1, 2003
It's time to do the numbers. Overall, look for sales to pass the $78 billion mark in 2000.Well, here it is - the much-requested and eagerly awaited Regional

It's time to do the numbers. Overall, look for sales to pass the $78 billion mark in 2000.

Well, here it is - the much-requested and eagerly awaited Regional Factbook. For many of you, it's a cornerstone to your annual budgets and sales forecasts. You crunch the Factbook numbers to help measure potential business, tally up market size and form your game plan for the upcoming year.

Of course, forecasting the future is an imprecise art at best; that's why data often comes footnoted with disclaimers like "reasonable estimates only" or "no guarantee of accuracy." This year, the Regional Factbook come with a footnote:

For more than 20 years our process of obtaining and calculating the data included in the annual Regional Factbook was tried and true - almost routine. But, with this year's release of the 1997 Census of Wholesale Trade, the process required altering. Because of changes in the way the Census of Wholesale Trade defined an electrical wholesaler, we had to take a different approach for updating the numbers in the Regional Factbook. The data is still as reliable as it can possibly be, but the method for assembling it changed. For a detailed explanation of how EW forecasts the Regional Factbook data, see page 33.

For now, let's focus on other approaches to assessing the market and ways you might use the Factbook to make your own predictions.

Rate-of-change forecasts One method of assessing the future is by obtaining consensus predictions. We gathered such information in an annual survey, which went to about 3,600 electrical distributor main houses in July 2000. It asked for 1999 results, how six months of 2000 looked vs. six months of 1999, predictions for the full-year 2000 and predictions for the full-year 2001. The respondents' combined predictions are provided in the Electrical Distributors' Sales Forecasts Table (p. 30).

With the U.S. economy still amazingly strong, electrical distributors expect to do well in 2000. They believe their sterling sales pace evident through midyear will continue through year-end. Although they anticipate slowing economic growth next year, their forecasts still show relatively good growth for 2001.

Specifically, as of July 2000 electrical distributors were forecasting 2000 sales would finish 10.5% ahead of 1999. Looking ahead to 2001, they anticipate a 7.1% increase.

In dollar terms, the forecast for 2000 would bring industry sales to $78.8 billion for the year (based on the 1997 Census of Wholesale Trade).

Having pulled off a 1999 sales increase of 8.3%, distributors were actually anticipating a stronger year in 2000 than last.

With electrical distributors reporting sales through mid-year 2000 already up 10.5% compared to the same period in 1999, the full-year forecast rate represents a continuation of business at the current pace. In contrast, at the six-month mark in 1999, business was up 5.6%, and they managed an 8.3% gain for the full year. As of now, U.S. economic growth appears to be slowing in response to rising interest rates and prices, but the pace of growth is still healthy. In past decades, electrical distributors' business has tended to trail the economy by about six months going into downturns as well as upswings. With that in mind, it seems likely electrical distributors as a whole will make their predicted mark for 2000.

Expectations for 2000 and 2001 varied by region of the country, but there were some consistencies. In every region distributors foresaw slower growth in 2001 than in 2000. For both 2000 and 2001, distributors in most regions expected single-digit growth. In both years, the multi-region companies (the big chain distributors and some specialists that sell nationwide) anticipated slightly higher rates of sales growth than other respondents, and their estimates pumped up the national percentage forecasts.

You can use this input to judge your own company's prospects.

Multipliers To estimate a market's size or an account's potential, use multipliers. A multiplier is a marker in terms of dollars or usage that you can use to figure out the potential for business.

National multipliers. The simplest way to ascertain what a company or market might be worth in terms of electrical product sales is to use Electrical Wholesaling's national multipliers. Each multiplier is a dollar figure that represents the average amount of electrical products electrical distributors sell to each particular type of customer. It puts these sales in terms of some other factor that increases or decreases with economic conditions and applies to all firms of the same classification. Usually this "economic factor" will be something like number of employees or households - some kind of data that is relatively easy to find.

To show how a multiplier works, let's take a closer look at one. For example, we show a multiplier for electrical contractors of $43,840 per employee. An electrical contractor with 10 employees would be likely to buy around $438,000 ($43,840 x 10) of product from electrical distributors. With 500 people employed by electrical contractors in and around a certain city, the market for electrical products sold to that type of company by electrical distributors would be over $21.9 million ($43,840 x 500).

National multipliers are provided in the chart below. They will prove adequate for most situations.

Custom multipliers. Take this same approach to create a multiplier using data of your own. You need a total dollar figure for the type of market you want to make the multiplier for, as well as an appropriate economic factor and a count for it. Multipliers have to be created from a full year's worth of data, and both the sales and employee (or economic factor) figures should be from the same year. If you are putting together multipliers from locally available data, you might find all that's on hand comes from a year or two back. You can still use this information to build the multipliers. To make them current with 2000 or 2001, you "bring them forward" by the rate of change in electrical distributors sales that occurred or are predicted for the intervening years.

You can bypass outside data altogether to make your own multipliers from your company's customer records. If you have among your own customers a number of similar-type companies, such as auto-parts plants or small contractors, you can start to tailor multipliers from your own internal records of annual sales. If you choose to go this route, use customer records for firms from which you are fairly certain you get a good piece of representative business.

Sales per employee results To tally up a market size it is possible to use an average-sales-per-employee figure, then multiply it by the number of electrical distributor employees in the area. Below, we show typical industry figures from a variety of sources:

$327,500 - Sales per employee in 2000 as reported by respondents to an Electrical Wholesaling survey in July 2000.

$408,000 - Sales per employee in 1999 among companies in Electrical Wholesaling's 250 Biggest listing that reported both a sales and an employee figure.

$376,946 - Sales per employee in 1997 under the Census of Wholesale Trade.

Business sector forecasts Instead of looking at overall electrical distribution industry forecasts, you can take into account the prospects by end market. For a rough assessment of future business, divide your company's sales into market segments, and apply the appropriate percent for your region, as in the chart (page 31).

An assessment by electrical distributors of their major markets at mid-2000 showed them to be experiencing the strongest growth for 2000 in the commercial market sector. The industrial market was not far behind.

Overall, electrical distributors had positive growth expectations for all market sectors in 2000, ranging from a high of 6.9% for the commercial market to a low of 1.7% for government markets. By region, however, the forecasts varied, sometimes into negative numbers.

The survey on which these forecasts were based went out to about 3,600 electrical distributor main houses in July 2000, asking for their forecasts for the sales increase (or decrease) in percentage terms for the major market sectors they serve.