What is Forecasting Demand?
Forecasting is the art of estimating future demand by anticipating what consumers are likely to do under a given set of future market conditions.
Why is Forecasting Challenging?
Few products or services are easy to place accurate market forecasting upon. Products and services that are easy to forecast tend to be businesses that are providing products and services to industries that have experienced steady sales and industry growth over a relatively long period of time.
Forecasting in a Disrupted Economy
In today’s pandemic economy, disrupted access to predictable supply chains and skilled labour can make forecasting sales or services difficult to get right. Most forecasting takes place in competitive marketplaces so events like disrupted supply chains or reduced access to consumer markets add an extra layer of complexity to an already difficult task.
Three Steps of Forecasting
There are three steps that businesses use to arrive at a sales forecast.
Firstly, businesses will make an environmental forecast. The environmental forecast will consider the impacts of inflation, unemployment, interest rates, consumer spending, business investment, government debt, exports, among other factors on a business’s operations.
Secondly, a business needs to conduct an industry forecast during its forecasting phase. Questions considered during this stage pertain to general industry growth, competition in the marketplace, and if there are social or technological trends emerging that could impact the industry in the future.
Company Sales Forecast
Once a business has conducted environmental and industry forecasts, they conduct company sales forecasts. Company sales forecasts may include surveys of buyers and interviews with key shareholders to try and understand if previous and current customers are likely to support the business with sales in the future.
Elaine Allan, BA, MBA
Technology & Business Blogger
Vancouver, BC, Canada