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Demand Forecasting Methods

by Jenna Hall

Demand forecasting is a common practice for sales teams and it is a great indicator of how the company’s sales are doing. In short, demand forecasting uses predictive analysis to understand and predict consumer demand in the near future. Forecasting can also be used top-of-funnel and to help make decisions about the supply chain. 

The Importance of Demand Forecasting

The importance of demand forecasting for companies is hard to be understated. Demand forecasting helps you understand your company’s financial position better. Forecasting will be able to help you on the ground floor by sparking interest, identifying leads, and encouraging sales teams to meet with potential clients. When using demand forecasting a sales manager will be able to time the closure sales deals and see if there will be room in the budget for other company activities before the quarter is over. Without demand forecasting, the revenue amount would not be known until the end of the quarter which can set other departments back. However, this is just one type of demand forecasting. Another prominent forecasting technique is used by companies in supply chain management. Managers in supply chain use demand forecasting to determine when new inventory needs to be ordered and shipped. Just as demand forecasting can be used in many different ways, it can also be used in many different areas of business. 

Demand Forecasting in Different Markets

Demand forecasting is not just used by sales managers. It is used by many different people in an array of business careers to ensure their company’s success. Here are some of the ways demand forecasting shows up around the business community: 

Demand Forecasting in Managerial Economics: Forecasting here is all about thinking several steps ahead of the market. Forecasting will be based on what competitors will be appearing in the next few years, predicting what the demand will be for certain products in the future, etc. 

Demand Forecasting Project Management: Using demand forecasting for project management is very similar to the forecasting methods used by sales leaders. The most important thing for project managers is determining what project the customer wants to see and how to execute that project in a way that is well received by people. There are uncertainties with project management, you can never be one hundred percent certain about what your quarter-end sales will be. However, demand forecasting still has infinite more advantages than disadvantages.

Types of Demand Forecasting in Supply Chain Management: Earlier we discussed how supply chain managers need forecasting to order inventory, but there are many different types of forecasting in supply chain. Namingly using the Delphi method for forecasting. This method is when a series of questionnaires are sent out to achieve a consensus forecast for the company to use to predict buying habits.

The Different Techniques of Demand Forecasting

Now that we have gone over how forecasting looks in different markets, we can dive into the different demand forecasting methods. Starting off, companies can choose to use qualitative forecasting methods or qualitative forecasting methods. Quantitative forecasting is the best for making financial decisions but qualitative allows for a better understanding of the data. There is also the trend projection method where a company looks back at their sales history. They will then determine their demand forecasting for their future quarters based on what they looked like in the past. The trend projection method, also known as the time series method,  is one of the oldest forecasting methods and it can be difficult to rely on because a company’s goal for last year is likely to be very different from what the company’s goals are for this year. 

Time Series Forecasting Method

 Although it can be difficult to rely on by just comparing old data to new data, there is a better way to do time series analysis. There are software solutions that do all of the heavy lifting of analyzing your sales team’s statistical data accurately and quickly. Canopy is powered by augmented revenue analysis and it helps companies get real-time notifications, pipeline movement, individualized coverage reporting, and much more. Using demand forecasting allows sales teams to close off the revenue of a certain quarter and it makes them able to start working on future bookings. Without forecasting, sales teams will not have a strong idea if they will meet their sales quotas until the time has already passed. Demand forecasting allows you to look ahead and start planning for the future. 

Interested in learning more? Check out some of our other pages!

Revenue And Sales Data Visualization Software

Sales Forecasting & Canopy’s Scenario Planner

Sales Pipeline

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