Comprehensive guide to Demand Forecasting

demand forecasting guide

Can you know the quantity of product you need for the next holiday? Do you know the capital you need to invest in stock? Can you prepare for the festive period to supply everything your customer requires? If you are still contemplating how to achieve that, demand forecasting is the solution you need.

In this write-up, we will look at its definition, the different types, and the advantages that come with it.

What is Demand Forecasting?

It involves the process of making estimations on the future demand of customers over a period through historical data. Performing proper demand forecasting is helpful to any business since it provides valuable information about your current market and other markets. Moreover, managers can make decisive and informed decisions about growth strategies, pricing, and market potentials with it.

For businesses that don’t use demand forecasting, it affects their decisions about market targets and products. Furthermore, the ill-informed decision has far consequences on customer satisfaction, inventory holding costs, profitability, and supply chain management.

Types of Demand Forecasting

Businesses can use several ways to do demand forecasting since we have different forecasting models available. However, in this section, we will look at the most popular types first.

Passive demand forecasting

For any business, this type of demand forecasting is the simplest to implement. It involves using sales data from previous sales to make predictions on future sales. In other words, you take previous data from a particular period to project the future sale for that period.

This technique works best if you already have solid data. If you are looking to stabilize your brand in a particular area instead of growth, then this option is your way out. You don’t need any economic trends or statistical methods to perform this forecasting.

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Active demand forecasting

Peradventure your business is in its growth, or you are just starting, you can use active method. It put into consideration your expansion plans, marketing campaigns, and market research. You would need external data in most situations since you have less historical data to draw relevant conclusions.

Short-term and long term projections

Short-term demand forecasting considers things within the first 12 months, whereas long-term option projects from one to four years. Both projections allow you to adjust to real-time sales demand based on your projections. For the long-term forecast, it focuses on you shaping the growth trajectory of your business.

Advantages of Demand forecasting

Reveal seasonal trends

Reviewing historical sales data enables you to identify seasonal fluctuations. Aside from holiday seasons that tend to be busy, you can also know which months you have fewer demands from customers and apply necessary strategies. For instance, if your sales took a downward turn every January, you can decide to offer discounts.

Plan your supply chain

Predicting demand allows you to plan and meet customer needs. For instance, if you always have a high selling period in a particular month, you can also stock your products during those periods to afford a shortage. With this, you will also find out which product would likely be on backorders.

Prepare for the future

Demand forecasting keeps you prepare for unexpected weather. You have to prepare for the unexpected days. For instance, a natural disaster or you have a new company competing for your market share. With this, you can prepare your supply chain.

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Understand what influences your sales

Demand forecasting uses previous data, which can help you determine what influences your sales. Forecasting can include data about the state of the economy, industry trends, and future market projections. All of these factors can help you adjust and grow your business.


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