eCommerce Logistics: The Science of Sales Forecasting

sales forecasting

Customer satisfaction has a direct impact on the bottom line of a business. Also, proper planning ensures that all business goals are met, and informed decisions are made. This, therefore, makes sales forecasting a crucial activity.

So, what is it? 

Sales forecasting looks to estimate the demand for particular products over a given period of time. 

Regardless of the size of the business and scale, sales forecasting is important for every business that sells a product.

Importance of sales forecasting

Regardless of the size of the business and scale, sales forecasting is important for every business that sells a product.

1. Improved inventory management

Poor inventory management will often lead to two outcomes: understock and overstock. With understock, your business is unable to meet the demand of the consumers. This leads to dissatisfied customers. More so, it will lead to lost revenue.

On the other hand, the effects of overstocking include the shortage of storage space, increased labor costs, and spoilage of perishable goods. Sales forecasting can improve your inventory management by preventing overstocking and understocking.

2. Enhanced financial planning

Proper financial planning is critical to the survival of a business. Sales forecasting goes a long way in helping a business maintain a positive cash flow. Through forecasting, companies can predict revenue and costs accurately. 

With this information, businesses can plan their spending appropriately and maintain a good cash flow.

3. Prevention of panic sales

Panic sales can result in losses as products are often sold at a lower price. A shift in customer demand and preferences often leads to panic sales. When the demand for a large volume of products goes down, businesses’ first reaction is to sell the products at a low price to make them move fast.

Through sales forecasting, the business gets an accurate prediction of demand at a given time. 

4. Improved product delivery

Sales forecasting also helps in speeding up product delivery. Last-minute manufacturing leads to delays. This happens due to a lack of accurate data on customer demand. Sales forecasting ensures that there are adequate products at any given time. This will lead to a good customer experience, which is also good for your business.

5. Better performance by sales representatives

Through sales forecasting, the business can help the sales team meet its targets. Accurate data on demand and supply of products will help the sales representatives plan their sales activities effectively. 

Things to consider when sales forecasting

Certain things will give you clues for your forecasts. They include:

1. Sales drivers

The demand for products and sales will shift from time to time. There are tons of factors that affect demand and create shifts. While making projections, you need to think about these factors, also known as sales drivers

Some of the sales drivers include business seasonality and changes in the market, such as inflation and much more. 

Financial information will help you make the right assumptions about your sales.

2. Financial results

Past financial results will also inform your forecasts. What you should be looking for includes the revenue you made in the past month, comparing the income earned during different periods, and other patterns in your financial statement. 

Financial information will help you make the right assumptions about your sales.

3. Look at other businesses

Looking at the financial information of other companies in your industry will also give you valuable information. If you are new to the company, It will take several months to know what toexpect. eCommerce forecasting could make your work easier in this instance.

Direct expenses are also worth looking at when making your sales projections. If you are experiencing an increase in sales, then it means that direct costs will increase. Comparing the direct sales to projected sales of previous months can help in making sales projections. 

Sales forecasting techniques

There are several approaches you can take to forecast your sales. 

1. Getting buyer views

This is a direct approach where you do a survey of buyers’ purchasing intentions. You can ask consumers what they intend to buy in the future and how much of it. The disadvantage of this approach, however, is that customer preferences change with time. It can be misleading as your forecast will be entirely dependent on what the customers say.

2. Projection of trends

This approach is possible if data on previous sales is available. Through statistical methods, you can identify the sales pattern over a given period and determine the demand characteristics. Using this technique, you will notice three main patterns: 

  1. There is a constant pattern, which indicates a constant demand through a given period. 
  2. A trend pattern is characterized by a steady growth or decline in demand. 
  3. The seasonal pattern describes the fluctuation of demand due to different sales drivers.

3. Salesforce polling

This technique relies on the information that the sales team has of the market. Sales representatives interact with consumers all the time and know the reaction of consumers to certain products. A salesperson can also tell what products the consumer will need in the coming months or years. 

The polls are conducted through different sales team members, and the information is consolidated and examined against other various factors. The advantage of using this method is that it is simple and includes the salesforce and executives in the supply chain.

4. Economic indicators

You can also use national economic indicators to project sales. Some of the indicators include the purchasing power of the consumers goods are targeted for. The national income is derived from the demand for specific goods and other relevant economic indicators. 

QuickBox’s Take Away

For effective sales forecasting, you must ensure that the approach you take is accurate. You can ascertain this by assessing whether previous predictions using the approach were accurate. A simple approach that can be easily understood is also vital. 

Gather adequate data and use various variables to make your forecasts as accurate as possible. Sales forecasts will go a long way in helping you achieve customer satisfaction by always meeting the demands of the consumers. Sales forecasts will also reduce costs by preventing poor supply chain management. Projecting sales will enhance your supply chain’s organization, leading to the overall success of the business. 

Do 3PLs provide sales forecasting as a service?

The correct answer- they should. If yours does not handle this crucial service, it might be time to consider switching to a new 3PL. Furthermore, you want to make sure they are experts at sales forecasting, otherwise they could be causing more damage than if you didn’t have it at all. QuickBox Fulfillment has over 75 years of combined sales forecasting experience and a dedicated team that manages it. Reach out to them today to learn more about this unique service and how they can help your business grow while saving you money.