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For large and small business owners alike, the concept of demand forecasting—an essential business practice in predicting turnover, profit margins, sales, and cash-flow—can feel daunting. Critical for helping your business see around the corner and anticipating the road ahead, mastering demand forecasting may maximize your business’ ability to think on its feet and operate at its peak.
Of course, it’s mostly impossible to predict the future, but having a solid forecasting process and practice in place can save lots of time and trouble down the road. Here are some of the most common approaches to demand forecasting to consider adopting for your business.
With a timeframe-based forecasting model you’ll be able to plan more efficiently, identifying the decisions you need to make and when you’ll need to make them. Business is fast paced enough without the added stress of unknown profit margins, cashflow, or predicted sales.
As a decision-maker, it’s important to keep top of mind the short- and long-term goals of the business so that all of the pieces fall into place as they should, and operations continue smoothly throughout the year. Evaluating historical data can be an important tool in short-term projections, helping make reliable projections for demand patterns. It may also open the door for sales rep evaluations, better preparation, turnover insights, more accurate inventory management, and management decisions.
Long-term forecasting is typically more ambitious, looking at product and service development goals and overall strategy. In analyzing what the next quarter will look like, or 6 months, or 3 years, your company may be much more prepared for the decisions you make as an owner.
Another tool that may help your forecasting is using a qualitative approach. Sit down with your sales managers, reps, and customer service employees. Discuss how they see the market or sales trending over the next few months and look for consistencies in their responses.
Macro and micro forecasting is easier than it sounds: consider your company in light of its position in the economy, as well as in its specific industry and/or market. For instance, if you are in construction, the pandemic and its effect on the economy has recently driven up the price of critical raw materials like lumber, which could have major impact on materials and sales. This is a macro-trend that can impact your longer-term performance expectations.
On the micro side, if you’re a home builder, consider the real estate market conditions in your local area. Is there limited inventory? Are your peers having difficulty keeping up with demand? Discussing your industry with colleagues and employees can shed light on factors (positive and negative) you might not normally consider that can factor into your micro-forecasting strategy.
Macro and micro forecasting makes your business more agile in times of decision-making and provides context in designing strategy, especially marketing.
Last but not least, think inside your organization in terms of growth, customer service, and customer expectations. Is your company growing? Is the demand for your goods or services higher than ever before? Applying these questions in the context of your employees, roles, and departments may be crucial in terms of what positions to fill and ultimately who you should hire.
While any of the individual methods covered here can certainly provide important insights, leveraging more than one method simultaneously can give you an even more complete picture of the road ahead and a potential edge against your competitors.
Lastly, creating multiple forecasts should be a consistent component of your demand forecasting model. We suggest designing best-case, worst-case, and conservative demand forecasts. While it will take a bit more time, it may be well worth it in the long-haul as you’ll be more prepared when things don’t go according to plan. Keep in mind that forecasting doesn’t predict the future, it helps you be more prepared for the future.
At the very least, you should have a working demand forecasting model. Thinking quickly on your feet is incredibly important for growing and maintaining sales. Honing-in on your methods and tweaking your model along the way is essential in being ready for those opportunities. A solid process with multiple stakeholders involved may uncover inefficiencies and ways to grow that might otherwise stay under the surface.
Over time, you’ll notice certain methods and tactics produce more fruitful forecasts than others. Ultimately, demand forecasting may increase efficiency across the board for your business and may lead to more sales, higher customer satisfaction, and maximize agility—a business trait that is consistently successful in almost any industry.