Top 5 Demand Forecasting Techniques and Factors to Consider

Predicting future market performances can be tricky. Economists and stock traders try to forecast business performance to make informed deci...

Predicting future market performances can be tricky. Economists and stock traders try to forecast business performance to make informed decisions when buying inventory. The benefits of demand forecasting for your business cannot be underscored. Ordering enough inventory ensures customers get all the products they need. This article describes the factors that influence demand forecasting.

Top 5 Demand Forecasting Techniques and Factors to Consider

1. Competition

Entrance or exit competitors into the market increases and decreases demand, respectively. For instance, if a new retail store opens near yours. You'll start to compete for the same customers. In the end, you may lose a few of your customers to the new business. The demand for your business goods could drop. Demand planning software helps in coming up with demand models and statistics.

Also, if a neighboring retail store collapses, the store customers may start buying products from your business — the overall demand for products in your shop increases. The competition will impact the accuracy of demand forecasts. Adjusting the demand predictions to changing market conditions is vital.

2. Seasonality

Some products tend to follow seasonal trends. Changes in the seasons lead to a drop or skyrocketing in demand. For instance, the need for Christmas trees is high during the Christmas season. During the start of the year, its demand dips, and stores adjust by not ordering any more.

If you're selling sweaters and jackets, the winter season is the best for you. You sell more sweaters and improve your revenues. But during summer, your business performance goes down. When dealing with seasonal products, a demand forecast will not reflect the actual demand.

3. Economic Conditions

Economic conditions impact your business product demand. A recession or depression leads to job losses and the population's purchasing power. Fewer working people mean lower demand for products, especially luxury goods. On the other hand, demand for generic and low-priced products increases.

During seasons of economic boom, more people are working. The demand for luxury products increases and demand for low-priced goods can decrease. Market research to determine overall demand for goods during recessions and booms doesn't give accurate predictions.

4. Geographical Conditions

Geographical locations of your customers, manufacturing areas and storage facilities impact the demand for your business products. To transport goods to stores, some vendors may require shipping means.

For your company to increase profits, choose a strategic supply chain location. For example, if you're selling fishing supplies, select a store within states with fishing lakes, oceans, or rivers. The orders and sales will be higher than in areas without fishing zones. The demand forecasting results aren't accurate in areas experiencing low or very high demand.

5. Goods

Demand forecasting for different services and products differ. For instance, demand forecasts for perishable products must be precise, or it can lead to inventory loss. On the flip side, demand can be less or more predictable for box service subscriptions shipped to customers within a month as long as customer attrition and retention are steady.

Competition, seasons, and types of goods influence demand forecasting. To get accurate predictions, adjust the demand forecasts with vital demand metrics.