What is Demand Forecasting?
Basically, demand forecasting is an analytical technique used for predicting the future of a particular product. Simply put, it indicates you estimate future demand so that you can plan your stock(Inventory) levels accordingly.
If you want to know the future of your e-commerce business, look to the past.
Where actual forecasting comes in …The perfect benchmarks are the direction of your marketing strategy, inventory levels, and cash flow which is your ultimate aim.
It helps you to answer questions like:
- What should you sell(product)?
- What do your customers actually want?
- How much of a certain product should you purchase from a supplier?
- How often do you need to restock inventory?
- How much stock do you need for next year?
Have a look at eCommerce analytics and your thinking goal. In demand forecasting, Konigle's inventory management seller tool for Shopify stores actually helps save time and increase profits.
What is the importance of demand forecasting?
In general, demand forecasting is all about predicting future sales trends. You can segment forecasting models by different factors. They include time scale, scope, and many more.
Without the demand for products, there is no business. And without an entire understanding of demand, businesses aren’t capable of making the right decisions about spending, production, marketing, and more.
Actual demand forecast accuracy will never be 100%, but there are certain steps you can take to improve lead times, increase operational efficiencies, save money, launch new products, and provide a better buying experience to the customer.
What are the major benefits of forecasting?
So, now you already know what demand forecasting is and how it works. We’ve also gone a little bit through how it benefits an eCommerce business. Its advantages, though, are many and well worth some further attention.
1. Helps reduce financial risk.
One of the main and important benefits of forecasting is that it provides a basis of evidence for your investment. If you can understand changing customer demands, it improves your financial decision-making.
2. Supply and demand
Modern buyers have more choices than ever before and are smart and demanding. They already know what they want, and they often want it right now. If you can’t supply, one of your competitors will. Demand forecasting ensures you’re not stuck in that situation.
3. Decreases expenses
Good inventory management is when you have continuously the right amount of stock at all times. If too little, then you risk disappointing buyers. If too much, your inventory and warehousing costs can increase. Inventory space in a warehouse isn’t cheap, so you must use it as efficiently as you can.
4. Pricing strategy that reflects demand
If we take pricing strategies as an example then one of the most critical and important factors in choosing such a strategy is the demand that presents for a product. You can charge more, after all, for products in higher demand.