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Demand forecasting is a difficult task to master. Even after you've been doing it for a long time and feel like you've gotten the hang of it, your projections will shift again.
The ability to find demand for your products and services used to be Midas' touch in business. However, as things stand in the industry today, it is no secret that demand for some products and services is whittling down.
Thus, in the absence of it, businesses must CREATE a demand to lead the buying behavior of the public toward your offerings. I'll walk you through some methods to increase your ability to estimate demand, whether your business is enjoying slow sales or is experiencing rapid development.
Forecasting Demand in Business: What does it mean?
It is a method for evaluating and forecasting future demand for a product or service using predictive analysis of historical data. Demand forecasting assists a company in making better-informed supply decisions by estimating total sales and revenue over time.
Businesses can use forecasting demand to improve inventory by anticipating future sales based on historical sales strategy plan’s data, helping them make better decisions about everything from inventory planning and storage requirements to executing flash deals and meeting consumer expectations.
Importance of Forecasting Demand for B2B Businesses
Demand forecasting for B2B businesses is an essential activity for firms for a variety of reasons:
- Business planning, budgeting, and goal-setting are all aided by sales forecasting. With a good idea of what your future sales will look like, you can start devising a procurement strategy to keep up with customer demand.
- It enables companies to manage inventory better, enhance turnover rates, and lower holding costs.
- It gives organizations visibility into future cash flow, allowing them to better budget for paying suppliers and other operating costs and investing in their growth.
- You may also discover and correct any links in the sales pipeline ahead of time with sales forecasting, ensuring that your business performance remains stable throughout the term. With inventory management, most eCommerce shop owners know well that having too little or too much inventory may be disastrous.
- Anticipating demand knows when to add more workers and other resources to ensure that operations run smoothly during peak times.
Forecasting the Demand for a New Product
Even if forecasting is complex, the first forecast must come from someplace. Buyers and analysts do their utmost to gather evidence that indicates how well the new product will perform in the future.
In some circumstances, you may have existing products that are "near enough" to draw comparisons. Varied-styled garments for the same buyer, laptops with different features but comparable costs, or last year's Christmas season merchandise can all inform future product forecasts.
- Retail specialists can conduct independent market research to provide insight into new product categories. Consultants can assist you in identifying new types of customers, determining a product's social media mindshare, and conducting local focus groups.
- When the demand for a new product is too uncertain, a pilot project may provide helpful information. A limited-run pilot in all stores may be your only option if you don't have enough stores to create a representative sample.
- Pre-orders for products you have never sold in your stores are another way to gauge demand. However, a good infrastructure for marketing and accepting pre-orders and statistics on the relationship between past pre-orders and in-season sales are required.
- Certain companies use pricing to determine the best demand. They start with small numbers and a higher price point for the new product, gradually lowering it until it reaches the most lucrative run rate.
Types of Demand Forecasting
Businesses can forecast demand in a variety of ways. Entrepreneurs use data and analytics in all forecasting models over specific periods.
The macro-level considers the overall state of the economy, external influences, and other broad factors that disturb business. These elements keep a company informed about portfolio expansion opportunities, market research data, and other market movements.
Entrepreneurs can tailor micro-level forecasting to a single sector, business, or client segment.
Entrepreneurs usually forecast for less than a year for the short term. It examines the demand for less than a year's sales worth to inform day-to-day operations (for example, planning production needs for a Black Friday/Cyber Monday event).
Entrepreneurs forecast for more than a year. It helps in planning for long-term expansion. They base long-term company strategy on this (e.g., plans to launch a facility or store internationally and expand into new markets).
Methods for Demand Forecasting
The proper forecasting method selection is one of the most critical aspects. As mentioned below, you can anticipate demand using (A) qualitative approaches or (B) quantitative methods.
1. The Delphi Technique
It entails appointing a panel of experts to create a Demand Forecast. Each expert must make a forecast for the section to which you have allocated them. Each expert reads their projections following the initial forecasting round, and other experts affect each during the process. All experts then make a new prognosis, and you repeat the process until all experts have reached a near-consensus scenario.
2. Opinion of the Salesforce
You can ask each Salesperson in the team to provide insight on predicted demand by the Sales Manager. Each Salesperson assesses their respective region and product categories, then responds to each customer's specific needs. After management's approval, the Sales Manager collects all of the demands and generates the final version of the Demand Forecast.
3. Market Research
Customer-specific surveys are used in market research to generate potential demand. These surveys usually take the form of questionnaires that ask end-users for personal, demographic, preference, and financial information. Because this form of research relies on random sampling, you should be cautious while selecting survey regions, locations, and demographics for the end customer. This strategy could be advantageous for products with little or no demand history.
1. Trend projection Method
You can efficiently use the trend projection method for companies with a long sales data history, usually more than 18 to 24 months. This historical data forms a "time series" that shows past sales and projected demand for a specific product category under normal conditions.
2. Technique of Barometry
You can develop the barometric forecasting technique for documenting current events to forecast the future. You do it in the forecasting process by examining statistical and economic indicators. To develop the Demand Forecast, forecasters typically use statistical analysis such as Leading series, Concurrent series, or Lagging series.
3. Econometric Forecasting
It is a technique that uses sophisticated mathematical equations and autoregressive integrated moving averages to create correlations between demand and factors that impact the market. You derive an equation and fine-tune it to achieve an accurate historical portrayal. Finally, you generate the forecast by plugging the expected values of the affecting factors into the equation.
What are the Basic Steps of Forecasting Demand?
Forecasting demand is an uphill task. You want to withstand sporadic influxes while also planning for the long term. Here are some helpful hints for your company.
1. Set your objectives.
The goal of forecasting demand should be clear. It works by predicting what customers will buy, how much they will pay, and when they will buy it. Choose your time frame, the exact product or broad category you're looking at, and whether you're estimating demand for the entire population or just a subset of it.
Make sure it is unbiased and meets the needs of your financial planners, product marketing, logistics, and operations teams.
You must first determine your objectives to correctly anticipate demand capacity, allowing you to understand online consumer behavior better using decision-making forecasting procedures.
2. Gather and record data.
Bringing together your sales channels can give you a unified picture of current product demand and insight into sales forecasts. Knowing the time and date of orders and the sales channel will allow you to anticipate growth and trend projections on a more detailed level and look back to evaluate how your forecasts compare to reality.
You should also watch e-commerce refunds, which can be expensive—assess high-return-rate products and change them based on the causes for returns. If customers return 10% of your products, you can cut that amount in half, and you may need to alter your output.
You may need to pull in additional data, such as market conditions, in addition to your past sales data. You must appropriately prepare data to ensure reliability and correctness.
3. Analyze and measure data.
You'll need a repeatable data analysis method, whether you do it manually or with automation and predictive analytics. It causes comparing your forecasted sales to actual sales to adjust your next forecast.
The graph below depicts four separate ShipBob customers on the same timeframe, all of which sent 60,000 total orders in the same calendar year. This information can track demand for various products at various times. While they typically ship about 5,000 orders per month on average, some months are significantly busier than others.
If the brands had underestimated the amount, they would not have had enough inventory to ship orders out and would not have had the workers to fulfill them all on time. They would have wasted a lot of money on merchandise that is just sitting and taking much longer than expected to produce income if they had over-forecasted the volume.
As your business grows, you may discover that you need to start recording other pieces of data, such as obsolete stock, stockout frequency, and other order specifics that need to be improved.
You can set your next projection (hopefully more precisely) and adjust your budget to allocate cash to the right places once you've established a feedback loop. Forecasting demand aids in reducing inventory carrying costs, the planning of marketing campaign’s expenditures, future headcount, manufacturing and inventory requirements, and even the development of new products.
Effective Ways on How to Create a Demand?
1. Special Offer Just for You!
Suggest a discount if a customer will follow you on social media and even share your blog post. This practical marketing approach allows clients to earn something by merit that others don't simply get.
2. Increase Demand through Incentives.
Incentives offered to new members and new customers who will purchase the product within a specific period create an air of exclusivity. Anything that you deny to others becomes exclusive to someone else. Anything that has an air of exclusivity will create a higher demand value.
3. Limited Offer Equates to Desire.
Manufacturers may produce a limited or collector's edition of a product. It is attractive to consumers because of, again, the exclusivity factor. The limited-edition strategy lets consumers believe that they are getting what other people won't obtain in the future.
4. The Members-Only Strategy.
It is among human nature to want the best deal possible. If consumers feel that they are getting a better deal by being a member of your particular consumer's group and getting discounts, they would likely go for it and buy your products and or services.
The Final Note
It is impossible to know what awaits us in the future exactly. That is why to achieve sustainable growth and success; your business must create a demand for your products and services.
I won't ask 'if' because it is now a 'must.' Avoid wasting energy and resources; let AI-bees help you create a demand. Please book a call with us, and AI-bees would be glad to be your partner on your journey to success.