As an entrepreneur, is your business picking up with gradual sales, or are you experiencing a high growth period? If you are at this stage, one of the most challenging things is to forecast demand for your products or services in the future. For you to succeed in business, you need to understand the number of inventory units that you must have at any particular moment to stay at full stock as well as how often you should replenish the inventory. If you are struggling to make sales projections, we are going to share with you some important tips that will help you forecast customer demand easily to remain competitive.
What is demand forecasting?
The term demand forecasting refers to the process of predicting future sales by relying on historical sales data to make informed business decisions. The historical sales data helps in making decisions regarding inventory planning, warehouse management, and fulfilling customer’s expectations.
When demand forecasting is done right, it helps business owners to predict the probable total sales and revenues for a particular future period of time.
Benefits of demand forecasting in business
Demand for either a product or service is what keeps all businesses alive. If there is no demand, there is no business. All the vital business decisions such as production, staffing, marketing, and promotions are made based on the demand levels.
The following are some of the benefits of demand forecasting.
1) It helps in fulfilling business objectives- Every business aims to maximize profits by increasing customer satisfaction and experience. If your product or service is filling a need gap and it’s in high demand, you will achieve your objectives if you can easily project future demand.
2) Budget preparation- Demand forecasting also helps you analyze your projected business expenses based on what products/services that customers are ordering. For your business to thrive, you need to have seamless order fulfillment by making sure you know the kind of products your customers want and making sure there is enough inventory in real-time.
3) Planning and scheduling of production- When you are able to forecast customer's demand, you are able to spend less on inventory and warehousing. If you buy excess inventory which will take long before you can sell it, the more expensive it will be to store. With demand forecasting, a good inventory control management system is achievable.
4) Evaluating performance- When you closely track the inventory levels, you can be able to tell which products are in high demand and which ones are in low demand. A better demand forecast help entrepreneurs optimize their inventory levels.
5) Making key management decisions- Demand forecasting helps businesses to make vital decisions in regards to budgeting, planning, staffing, marketing, and strategic growth projections. Data-driven management decisions help in improving efficiency and customer experience.
Types of demand forecasting
There are various demand forecasting types which are broadly categorized based on economy and time period. They include;
a) Macro-level forecasting- Focuses on the macroeconomic environment by dealing with issues to do with National Income, GDP, IIP, employment levels among others.
b) Industry-level forecasting- It narrows down the demand projections for a certain product or service at an industry level as a whole. It can be the level of demand for oil, cars, construction materials, or clothes in a particular country.
c) Firm-level forecasting- The demand forecast narrows down to a specific firm’s product. For instance, Cement, Suits, or car type.
d) Short-term forecasting- The projections are based on a short period of time usually six months or less than one year.
e) Long-term forecasting- Projections cover a longer period of time mostly more than one year. Data collected is mostly used to make strategic decisions that help achieve long-term objectives.
Author, Freelance writer