Benefits of forecasting in your business
You would be surprised to learn how many businesses do not have a demand planning unit or a dedicated forecasting one. This function should be part of the pillars that form the foundation.
Every business plans for sales and how they aim to reach those targets. This can all be for naught if proper forecasting is not done. Forecasting is simply using historical data, current trends and other factors e.g seasonality to predict the future trends. This information can determine how budgets are allocated or how profitable your business is.
Let’s take a manufacturing business as an example. When you do not forecast you run the risk out of stocks. Without stock you cannot make sales. Changes may be made in the production schedule to meet the demand for the faster selling product, but this incurs change over costs reducing your profitability. The bigger risk here is that your customers will switch to a competitor products or services. Sometimes it is harder to win your customer back after they have switched. If you have a monopoly on the service or product, you open the door for competitors to move in and take your market share reducing your profitability.
The inverse is also possible, you may have excess stocks. This product must be stored, incurring risks and further cost on storage, insurance etc. You may even have to discount the stock to clear it if there is a shelf life to it, this stock is also holding up capital.
When forecasting you need to account for changes in the market. observes the market at large, review the recent trends and the economy to understand the economic trend. This allows for a more objective forecast, dispelling any preconceived notions.
Stepping back and allowing for input from other areas of business also allows for a more accurate forecast.
Remember that forecasting should not be a once off event. It should form part of the normal processes of your business, no matter what product or services you offer.
You would be surprised to learn how many businesses do not have a demand planning unit or a dedicated forecasting one. This function should be part of the pillars that form the foundation.
Every business plans for sales and how they aim to reach those targets. This can all be for naught if proper forecasting is not done. Forecasting is simply using historical data, current trends and other factors e.g seasonality to predict the future trends. This information can determine how budgets are allocated or how profitable your business is.
Let’s take a manufacturing business as an example. When you do not forecast you run the risk out of stocks. Without stock you cannot make sales. Changes may be made in the production schedule to meet the demand for the faster selling product, but this incurs change over costs reducing your profitability. The bigger risk here is that your customers will switch to a competitor products or services. Sometimes it is harder to win your customer back after they have switched. If you have a monopoly on the service or product, you open the door for competitors to move in and take your market share reducing your profitability.
The inverse is also possible, you may have excess stocks. This product must be stored, incurring risks and further cost on storage, insurance etc. You may even have to discount the stock to clear it if there is a shelf life to it, this stock is also holding up capital.
When forecasting you need to account for changes in the market. observes the market at large, review the recent trends and the economy to understand the economic trend. This allows for a more objective forecast, dispelling any preconceived notions.
Stepping back and allowing for input from other areas of business also allows for a more accurate forecast.
- The sales team will give indications of any inadequacies in the sales team. While operations may inform you on any changes in the number of locations. While the marketing team may give you their promotions and activations.
- It allows for data tracking. You can analyse historic data to see where sales are generated from and make projections for new sales. You can track for activity when new products are launched or when there is promotional activity.
- By tracking your sales, you’ll also be able to find of areas of sales opportunities where sales have been lost sales and why. You can also track for increasing sales. By tracking these, you’ll be able to improve and capitalise on sales strategies.
Remember that forecasting should not be a once off event. It should form part of the normal processes of your business, no matter what product or services you offer.
