Why is Demand Forecasting Important?

How to Define Demand Forecasting

There are many ways that you can choose to define this important concept. However, it is certainly a process that proves quite useful for many companies that are planning to roll out new services and products. Demand forecasting is one method of predicting future demand and it begins with taking past sales data into account and utilizing it to predict future consumer demand. This is useful for a number of different reasons. One of these reasons is that it allows your company to make estimates about how many services or products it is going to sell and the amount of inventory that the company needs to order.

Demand Forecasting Minimizes Risk

You will find that there are many different reasons that this process is important. One reason why this process, also called sales forecasting, is important is the fact that it is useful in allowing your company to minimize the amount of risk it takes with a new product or service. Sales forecasting allows your company to predict how well a new product or service is going to sell. As a result, it decreases the likelihood that your company will spend valuable resources on a new product or service that will not generate profit.

Demand Forecasting Decreases Waste

One of the biggest problems that you want to avoid with your company is wasting too much of your valuable resources. This is especially important when your company is introducing some kind of new product or service. However, sales forecasting is quite useful in reducing the amount of waste when you come out with a new service or product. Sales forecasting allows you to predict the future demand for a product or service, so you know how many resources are needed to meet this demand. It helps you avoid ordering inventory that you do not need for a new product or service.

Demand Forecasting Helps You Plan Your Budget

Another part of the importance of this process is that it is quite useful in helping you plan your company budget. One of your primary objectives is to make sure that your company is capable of generating a consistent cash flow. Sales forecasting can help you out with this in that it can help you figure out how much money you will have to spend on the new product or service that you are introducing to your customers. This way, you can allocate your resources accordingly and come up with a better budget.

Demand Forecasting Helps You Set Prices

There are many things that go into running a business effectively. One of those is setting your prices properly and sales forecasting can help you do this. Sales forecasting can allow you to make accurate estimates about when your product will be at the peak of its popularity. As a result, you can adjust the price of the product accordingly after you have a clearer picture of the future demand for it. You can also capitalize on opportunities when the demand for your product is quite high but your supply of this product is low.

Demand Forecasting Helps You Optimize Inventory

One more reason that sales forecasting is important for your company is that it helps you optimize your inventory. A solid understanding of what you need for your inventory is important so that you can use the reasons you have available optimally. You naturally want to make sure that your inventory costs are as low as possible, but you also have to have enough inventory to deal with surges in demand. Sales forecasting helps you do this because predicting future demand lets you stock up as much as necessary and helps you predict when you need more inventory for an upcoming surge in demand.