What is Ecommerce Demand Forecasting?


June 16, 2023

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It’s safe to say that we live in a fast-changing world. 

As a business owner, it’s tempting to white-knuckle your way through the twists and turns of the modern market. After all, even the most informed and experienced analysts can still get their predictions wrong; leaving the rest of us to feel a bit powerless in the face of a constantly evolving business landscape. 

But, believe it or not, predicting future sales trends is still highly beneficial for businesses. The process is known as ‘demand forecasting’—and while you can never be 100% accurate in your predictions, it is valuable for developing a roadmap for future ecommerce trends, sales, and practices.

While not an exact science, demand forecasting is helpful for various elements of your business, from inventory planning to customer service. This article will examine demand forecasting, how it works, and how it can benefit your ecommerce business.

Importance of ecommerce demand forecasting

Demand forecasting helps you to prepare for each quarter. It gives you an idea of what your customers will want and when. This lets you have the right stock ready at the right time and makes sure you won’t have unwanted stock gathering dust.

These aren’t the only benefits of ecommerce demand forecasting, though. Forecasts are also beneficial as they:

  • Help you to streamline your cash flow: When you know when and where to invest your budget, your cash flow will become a lot more efficient.
  • Boost your brand reputation: By making sure that you can always keep up with customer demands, consumers will view your business as trustworthy and reliable.
  • Enable you to make informed decisions: Accurate data allows you to devise a well-targeted marketing strategy that capitalizes on timely customer needs.

Factors affecting ecommerce demand forecasting

Season and trends

Seaons have a significant impact on the ecommerce industry. Trends, needs, and desires all fluctuate with the seasons. For example, a clothing brand will feature coats and sweaters in the winter collection and shorts and T-shirts during summer. 

Then there are seasonal trends. For example, it’s a fairly safe bet that people will be shopping for gifts around Christmas time. Depending on your offering, you can also release products and designs that cater to demand around Easter, Mother’s Day, Ramadan, and Halloween. 

Of course, not all sales trends can be predicted on a seasonal basis. The zeitgeist fluctuates wildly and can be unpredictable. For this reason, it’s always worth giving yourself some room to maneuver in your demand forecast.

Customer behavior

Customer behavior is one of the main factors used to forecast demand. As they say, the best predictor of future behavior is past behavior. So it goes without saying that analyzing historical sales and customer behavior trends can offer insight into future demand.

For example, if your customer base is professionals who work 9-5, you may find that they do most of their shopping during their lunch breaks, after working hours, on weekends, and during festivals or public holidays. 

You can use this behavioral pattern to anticipate extra demand on weekends or around special occasions like Thanksgiving.  As well as increasing stock levels, you can factor demand into your advertising­­—for instance, spend more on paid ad placements to boost visibility when you know more people will be online.

This doesn’t need to be done manually, either. You can invest in ERP software to gather, synchronize, and analyze data from multiple points across your business. Integrating this data into your ERP can be tricky unless you’ve set up APIs with your marketplaces. Alternatively, you can export data to the ERP system periodically by using an advanced multichannel product listing solution like Zentail.

Gathering this data gives you a clear picture of purchasing patterns, demographics, and more. You can then use this information to draw actionable insights about customer behavior and create accurate forecasts.

Market size and demographics

The size and nature of your market will influence your demand forecasting in several ways.

In some ways, a smaller market is easier to predict. That said, this isn’t necessarily the case if that market is demographically diverse which you’ll be dealing with in a multichannel strategy. 

A larger market may generally be harder to predict. By capturing and analyzing real time and historical sales data, you’ll be in a much better position to do demand forcasting. 

Keep in mind that different demographics tend to have distinct demands and buying behaviors. For example, younger demographics are more likely to be influenced by TikTok trends or purchase products on the TikTok marketplace. Older demographics, meanwhile, may prefer Facebook marketplace or Amazon.

It’s important to note that selling in a multichannel environment helps you leverage the SEO positioning already in place and paid for by marketplaces such as Amazon, Walmart or Target.  Instead of cannibalizing revenue, buyers will see your listings in their browser for example - but still purchase from their preferred marketplace. 

Use insights about your market and its demographic makeup to predict demand trends over the course of the year. You could also use what you have learned to build buyer personas, which will help you to build better relationships with your customers.

Product categories

Different products appeal to different people at different times. One obvious example is greeting cards. A business in this sector will likely get a run on Christmas-themed cards in November and December, while birthday-themed cards will have a relatively even and steady demand throughout the year.

You can use purchase patterns and insights about product category demand to forecast your supply needs over the course of the year.

Existing competition

All of these factors are mutable to an extent. You cannot perfectly predict which trends will take your customers by storm, and not all members of a demographic will behave in exactly the same way. 

In many ways, demand forecasting is a matter of taking broad averages and using those to make generalized predictions.

Your existing competition is no different. At the moment, you should have some idea of who your competitors are, the market niches they occupy, and how your offering differs from theirs. But you can’t perfectly predict when your competitors might do things like put on a big marketing promotion or release a new product that puts yours on the back foot.

Use what you know about your competitors, the way they operate, and their offering to predict when their products will pose the most significant threat—and when you can forge ahead and dominate the market. 

Benefits of ecommerce demand forecasting

Better inventory management 

Every ecommerce business knows that robust inventory management is crucial to running a slick, efficient, and streamlined operation.

Accurate forecasts allow you to get the right stock at the right time without wasting any money or space on unnecessary inventory.

You can even link up your demand forecast from your multichannel management solution with your ERP implementation software to draw detailed insights about your inventory levels. With designated software, you can enhance your predictions and receive alerts when you have under (or over) estimated demand and need to take action.

Price optimization

Understanding when certain products will be popular helps you set prices for the best possible conversion rate.

For example, reducing the prices of winter goods as spring approaches can help to shift stock that would otherwise go unsold. Similarly, understanding when demand for new products will be highest helps you to release them for a premium price at the right time.

Enhanced customer service

Demand forecasting involves closely studying patterns of customer behavior. This naturally leads to a greater understanding of your customers.

This insight puts you in an excellent position to offer top-tier customer service, improving customer satisfaction and loyalty. Knowing who your customers are and what they want enables you to give them the service they need.

Similarly, demand forecasting can tell you when your busiest times are likely to be, which enables you to optimize your customer service during those times. 

Minimizes risks

Demand forecasting allows you to prepare for what the market is likely to throw at you.

While there is always an element of white-knuckling in ecommerce (some things will inevitably hit you out of left field!), demand forecasting minimizes your risks.

Improves sales and pricing strategy

Presenting customers with what they want when they want it is a surefire way to boost your sales. But knowing when demand is going to be high and when it is likely to fall also helps you devise the perfect pricing strategy.

Forecasting tells you when to discount certain products (or even use them as loss-leaders) and when customers will be happy to pay a premium price. With this in mind, study your sales patterns carefully and use them to optimize your sales and pricing strategies.

Streamlined business operations

Demand forecasting allows you to focus your efforts and resources in a way that would be impossible if you operated without a roadmap.

Without an accurate forecast, you will have to take a more scattergun approach to sales, marketing, inventory, and pretty much everything else. You will likely push products with little idea of whether or not they are what your customers are looking for. This naturally leads to a lot of unnecessary spending and wasted resources.

With a good demand forecast, you can slim down your business operations to the essentials. This can be even more effective if you incorporate tools like customer behavior analytics tools or, as previously mentioned, ERP cloud software. They provide data that improves your ability to forecast and help streamline other parts of your business. 

Done right, you can combine all these efforts to prioritize popular inventory, put your marketing resources where they will be most effective, and generally streamline your systems to be lean and optimized.

Final thoughts

Demand forecasting is not an exact science, but it is still very much worth doing. The process can save you money, streamline your operation, and boost customer satisfaction at the same time. What’s not to like?

To get the right insights, you need to create a workable demand forecast. It’s essential that you are gathering and analyzing data from all channels regularly and consistently. The good news is that there are various multichannel ecommerce software solutions that can help you to do this. 

Use the tools at your disposal and do your market research, and you’ll soon have an effective demand forecasting strategy that sets you up for success.

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