Even when all else is constant, forecasting demand can be a struggle even for the most experienced business founder. Throw in the uncertainty of the economy rebounding after a global pandemic, and it’s enough to make anyone’s head spin.
If you’re new to demand forecasting, forecasting is the process of looking at all of your data—things like your sales pipeline and your historical data in order to predict when you’ll see ebbs and flows in sales. Although it may sound simple in theory, in practice it can be quite complicated to gather the relevant data, especially as the global economy begins an uneven rebound from the COVID-19 pandemic.
As difficult as demand forecasting can be, it’s very important for any e-commerce business and can have serious implications on your bottom line. Beyond this, being able to accurately forecast future customer demand is a key component of inventory management, which directly leads to customer expectations as they relate to order times, for example.
Why is demand forecasting so important?
One of the main reasons demand forecasting is so important is that it dictates your business planning, budgeting, and goal setting. Using historical sales data, for example, you can anticipate future demand based on factors such as seasonality. Your forecasted demand should help inform your budget at different times of the year, ultimately allowing you to set realistic and attainable business goals.
One of the big goals of demand forecasting is to optimize your inventory and its turnover rate. If you have too much inventory sitting in a warehouse, you’re wasting valuable money on warehousing that could be reinvested elsewhere in your business. If you don’t have enough inventory in your warehouse, you risk long wait times between a customer’s order and the delivery of your product.
When it comes down to it, demand forecasting helps you optimize your sales cycle and keep your operations running smoothly. So, how can you go about demand planning?
Establish and review your sales and marketing funnel
Your sales and marketing funnel gives great insight into the demand you can expect during any given period of time, but some companies barely consider their funnel at all. If you haven’t yet established your sales funnel, this guide from BigCommerce goes into depth on some great strategies to employ.
If you’re familiar with the traditional sales funnel, you’ll know that it covers four main stages: awareness, interest, desire, and action. Depending on who you ask, the sales funnel can also include a fifth step: retention. You want to make sure that your marketing efforts are covering each of these stages, and that your sales team is accurately reporting which leads are in which stage of your funnel.
If you’re able to nail down your sales funnel and ensure that you’re covering all of your bases in your marketing efforts, you should be better prepared to forecast demand. Let’s take a look at the five stages of the standard B2C sales funnel.
The awareness stage, as its name suggests, is all about creating customer awareness of your brand. At this stage, you’re not pushing your product onto the market, but rather providing helpful information to your potential customers. The awareness stage should be focusing on factors such as brand awareness campaigns and your customer outreach strategy.
If you’re doing any advertising at all, it’s likely that you’re already hitting on the awareness stage. Decisions like which platforms to use and which organizations to partner with are crucial when trying to create awareness of your company. Some strategies to employ at this stage of the sales funnel could include running a PR campaign or sponsoring an event.
At the interest stage, the customer already knows your brand or offering, and may have even expressed interest by taking an action such as signing up to receive your emails. At this stage of the funnel, you’ll want to have a grasp on your content strategy—how are you communicating with interested leads? Where are you featuring your product information? How are your potential customers gathering information about your offering?
At the interest stage of the funnel, you’ll want to provide product information and social proof—things like testimonials, ratings, and reviews. You might employ tactics like an email campaign, or organic or paid social media posts or events. This can help push leads to the next stage of the sales funnel: desire.
Once a lead reaches the desire stage of the sales funnel, they’re already aware of your brand and offering, and are on the cusp of making a purchase. At this stage, you might focus on making sure you have speedy response times on social media, or even on your website if you have a chat function. If it seems daunting to introduce a chat function on your website, there are some great companies out there, like Gorgias, who help you manage customer service across a variety of channels.
It’s also helpful to offer perks to your leads at this stage. Things like a discount for your first purchase or for subscribing to emails can help tip the scales in your favour. It’s also important to continue feeding leads social proof of your product and business at this stage. Continue to leverage your ratings and reviews as you were in the interest stage.
The action stage occurs once a lead takes an action, such as making a purchase, from your website. You might think there’s no need for further marketing at this stage, but that’s not quite true.
The buttons on your website are also known as CTAs (calls to action), and are an important part of this stage. How will a lead convert if they can’t find CTAs on your website? Make sure your CTAs are prominent, eye-catching, and featured across your website. There are also other tricks you can employ, like having a CTA follow the customer down the page, or grow larger once they’ve reached the bottom of the page.
The final stage here is retention. This stage is absolutely crucial as it relates to demand forecasting. Loyal customers are far more predictable than first-time customers, and you may have read stats like the fact that it can cost 5x more to acquire a new customer than to retain an existing one. You might think your product or service is great enough to keep customers coming back for more, but they’re likely being bombarded with ads and marketing messages from your competition.
In order to keep your customers loyal and engaged, you can consider offering things like a loyalty or referral program that rewards them with discounts and deals the more they spend or refer. You can also continue to leverage tactics like email marketing and even run competitions on social media to keep them coming back.
One of the best ways to forecast demand is to look back at your historical sales data. Most companies were selling their products online far before the COVID-19 pandemic, but the pandemic has further pushed sales online.
If you’re one of the companies that recently made the move to selling online, your sales data may not be the most reliable considering the unpredictability of the past year and a half. If you’ve been an e-commerce company from the get-go, however, you can definitely lean into your historical sales data while forecasting.
You might’ve heard that the pandemic accelerated the shift to e-commerce by five years, which means two things: more people than ever before are shopping online, and more of your competitors are now selling online. Because of this, your 2020 sales data may not be the most accurate. This doesn’t mean you should completely ignore it, but rather take it with a grain of salt.
So, take a look at whatever historical sales data you have, and use an analytics platform to track any trends—have your sales been trending upwards or downwards year over year? Are you seeing more or less visitors to your site month over month? Does your average order value (AOV) increase or decrease based on the season? Find the answers to questions like these in order to inform your demand forecasting. If your AOV doubles in summer and fall, for example, you’ll know to expect to make the bulk of your sales in the back half of the year and can prepare accordingly.
It may seem obvious, but looking to your existing customers to gauge their readiness to make another purchase is a great way to get an idea of future sales. Depending on your industry, it may seem a bit awkward to ask your customers outright when they plan to buy another t-shirt, for example. Instead of just sending out a mass email asking when a customer plans to make another purchase, there are a few other tactics you can employ.
One tactic is using email marketing—add a question to your post-purchase or NPS email asking customers when they expect to make another purchase. Alternatively, you can work this question into a regular survey to be sent out to customers either by email or on social media. If you’re not seeing great results, you can always add a discount code to the end of the survey to reward your customers.
You can also check your analytics platform to track individual customers. Pick a random sample of customers and track when they’ve made purchases—do they usually wait two weeks in between purchases, or several months? This can unlock some valuable insights on your sales cycle with customers, better allowing you to predict when a subsequent purchase is looming.
Demand forecasting is a crucial factor in inventory planning and supply chain management, and can help save you lots of money and heartache. When done right, it gives you a leg up on the competition, keeping you one step ahead. Regardless of which forecasting technique you use, it’s important to keep it top of mind when planning your marketing strategy.
As more progress is made with the pandemic, you can expect to see a shift in demand across different geographies. Remember, not all economies will be making a full rebound this year, so consider where the majority of your sales are coming from and take your sales data from the past year with a grain of salt. Your forecasts will never be perfect, but perfection isn’t the goal. As long as you’re starting to consider these factors, you’re on the right track.