Many ecommerce owners see their sales surge at different times of the year. These surges tend to align with certain holidays or events, like Black Friday, Christmas, or Mother’s Day. While seasonal sales are a welcome addition to your bank balance, it’s important for you to be able to meet demand when it’s needed.
Basic seasonal demand forecasting helps you make strategic decisions, like whether you should upgrade your equipment, or when you should place your wholesale orders. Those are the kinds of calls you want to be able to make for yourself, and a demand forecast is one of the best ways to do it.
What is seasonal demand forecasting?
Seasonal demand forecasting is commonly used by ecommerce merchants to determine how many sales they can expect at different times of the year. Customer needs can change dramatically between seasons, and knowing how many units you’re likely to shift can ensure you have enough stock and can manage your cash flow.
Why seasonal demand forecasting is important
There are months when it feels like you’re swimming in money—and others where your bank account feels more like a desert with a lone tumbleweed blowing through it.
That’s because most businesses experience seasonal peaks and troughs. A few months of the year fund your business for the others, and you probably spend your “off” months investing back into your business.
That’s why forecasting demand is critical—especially for seasonal businesses that rely on sales from one peak period.
Ensure all your expenses are fully covered
Business is never easy, let’s get that straight—but it’s easier to wing it with your business finances if you earn $5,000 every month and have only $1,500 a month in expenses.
But if you earn $50,000 two months of the year, and your monthly expenses aren’t very stable, forecasting is critical. It’s one more thing that will help you resist those treat-yourself moments in high-revenue months, and help cover any shortfalls during the offseason.
Proactively invest in your business
If you could really use a new laptop or upgraded equipment, a forecast can help you figure out when you’ll be able to afford those big purchases.
A forecast can also help you decide whether taking business financing to fund a purchase would be a good move.
Get the capital you need without the complications
Through Shopify Capital, you get the money you need to grow your business with just a few clicks. There is no lengthy application process and no paper forms to fill out.
Set yourself up for success during the busy season
Stocking up ahead of the busy season is critical, which is why we recommend doing things like making sure you have enough shipping supplies ahead of a busy sales season, such as Black Friday and Cyber Monday. The importance of preparing for busy time periods is magnified when the busy season is your only season, so you’ll need to invest in inventory, supplies, and more before you need them.
Take charge with strategic decision-making
Maybe this is the year you finally decide to spring for seasonal help or take additional business financing. Making those decisions is much easier when you have an idea of what your year looks like, what you’re committed to spending already, and how much you think you’re going to sell.
Increase customer satisfaction
Don’t leave shoppers disappointed with “out of stock” notices. Seasonal demand forecasting estimates how many units you’ll need for the busy season, which means there’s less chance of a stock out. Cue happier customers that come back.
Relying on seasonal sales is risky without a solid strategy. Seasonal forecasting not only avoids stockouts by ensuring you have enough inventory to satisfy demand, it also helps you prevent over-ordering ahead of major shopping holidays and reduce any excess inventory costs.
Challenges of ecommerce demand forecasting
It can be tricky trying to predict seasonal variations. But after a few years in the game, you’ll start to identify patterns in shopping behavior from your past sales data. This will arm you with a lot of the information you need to make strategic decisions, but there are still a few challenges that can complicate things.
1. Supply chain delays
There’s no predicting when a freak weather incident or staff shortages will hamper your supply chain. This can impact your demand forecasting because, obviously, you’re not psychic and unlikely to know if a shipping container is going to get stuck in the Suez Canal again or not.
2. Inaccurate data
Data is the bedrock of seasonal demand forecasting. Without it, you can’t take past insights and project them onto your future predictions. Even the best-kept data can let you down, whether due to human input error, internet downtime, or duplicates.
3. Changing competition
Ecommerce is booming, which means there’s a fresh wave of competition to contend with every year. Any number of new brands could swoop in out of nowhere and steal your customer base. You might have had an excellent holiday season last year because you had very little competition. But this year, things could be a totally different story, and there’s no concrete way to predict that.
4. Shipping costs
Shipping costs tend to shoot up during busy times of the year to meet demand. Trying to factor this in can be difficult when you can’t get specific information on costs and timings.
5. Evolving consumer preferences and trends
Consumer preferences change with the seasons. What was a total hit last year might not be again this year, and vice versa. This can make it hard to predict what’s going to happen in the upcoming busy season.
How to build a reliable seasonal demand forecast
1. Set goals
Before you start digging into your data and polishing your crystal ball, think about what you want to achieve during the upcoming season. Use past sales figures and patterns to determine what’s possible, and make sure your goals are SMART:
For example, “Increase December holiday sales by 10% on last year” is a better goal than “Increase holiday sales.”
2. Collect data
Once you know what you’d like to achieve, it’s time to get your hands dirty with data. The more knowledge you have, the easier it is to make accurate predictions.
In particular, look at:
- Sales data. How many products did you sell last year? Which products were your bestsellers? How much sales revenue did you make?
- Inventory data. Did you stock out last year? How many products do you currently have in your inventory?
- Customer data. Who are your best customers? How much does each customer typically spend in your store?
- Data on your competition. Who are your biggest competitors? How many sales did they make last year?
3. Predict future demand
Your job is to make a reasonable prediction, not to nail the exact numbers you’ll be selling a year from now.
So how do you do that? There are a few ways to predict future demand. You can look at:
- Industry statistics. Is there a consistent growth rate in your industry, or have analysts predicted a specific growth rate for the next few years?
- Industry peers. Talk to other business owners. When do they typically see the most sales? How much do they sell in a year, roughly?
- Your own sales history. If you’ve been in business for a while, how much do your sales grow every year? How much did they grow last year, and how much did you sell last year?
- Signed deals. If you’ve got wholesale contracts already in place for next year, you know you’ll sell that much already, so it goes in your seasonal forecast.
If you’re a new online business, or if you plan on launching new products this year that have no historical data, use what you know about your business and your customer base to make a best guess. You’re the expert on what you do, after all.
Now it’s time to get into the numbers.
Let’s talk products. Specifically, how many do you have? If you’re rocking fewer than five or 10 signature products, you can give them each their own, separate seasonal forecasts. Once your products hit that double-digit mark, you’ll want to group them into product lines for a more manageable forecast.
Set up each product or product line as a row in your spreadsheet under “Product Unit Sales.” This is where you’re going to input your forecast of how many units you’ll sell of each product this coming year, and which month you’re going to sell them.
Download your own copy of the forecasting spreadsheet template. Go to File > Make a Copy to save one to your account and keep your forecasts private. (You’ll need to be logged in to a Google account to save your copy. You can also adapt it to Excel.)
Next, add in the prices you plan to sell those products at each month. Maybe you plan on raising your prices mid-year, or you offer so many sales in November that you know your average sale price is lower. Add in those monthly prices now for each product line.
Scroll down a bit, and boom: you have a sales forecast.
4. Measure and adjust
Keep a close eye on your numbers as the season progresses. Seasonal demand forecasting isn’t a “set it and forget it” activity. Instead, you should regularly check in to see whether you’re hitting the numbers you predicted or whether there are any friction points.
The more you stay on top of your predictions versus what’s actually happening in your business, the easier it is to pivot to meet excess demand or address surprise challenges—like a shipping container getting stuck in the Suez Canal.
Best practices for improving your seasonal demand forecasting
Know your seasonal sales trends
First and foremost, the best way to forecast your sales is to know your historical sales, and what your peak season sales are usually like year over year. So, if you’ve been tracking your sales with a system like QuickBooks Online, do a few reports to get a sense of your sales trends.
Compare your sales year over year, and note if there are any outliers—the spike or dip in sales unrelated to anything else.
If possible, generate a report that segments by customer type and looks at the sales and growth from each customer over the past year or few years. There’s a good chance you’ll have a couple more profitable—or more reliable—customers than others, and you can focus on keeping those relationships running smoothly.
Start forecasting early
The earlier you start working on your forecasts, the more time you’ll have to plan for your best-guess forecast.
Use the templates above to predict your seasonal inventory needs and maximize your cash flow, so you’re prepared for every forecasting scenario you can dream up.
Keep stock reserves on hand
Seasonal businesses are more likely than others to experience inventory issues. That’s because inventory management is tough when your sales vary so much between seasons.
You can avoid this problem entirely by making sure you keep a little bit of inventory on hand in between seasons to tide you over until you can place your next order. Try to keep your minimum inventory at about 70% of your maximum inventory level for your busy season.
Get an inventory management software
Speaking of inventory planning and management, you’ll want to get inventory management software to help automate forecasting.
These tools not only can track inventory levels for all the items you carry, but they also can be integrated with other tools like QuickBooks Online or your ecommerce platform, so your inventory levels are updated automatically and you can see if you’re about to run out of a product.
Shopify app Stocky is a great inventory management tool that helps you have better supply chain visibility and know what products you should order based on product performance and seasonality.
Pay attention to your supply chain
Successful seasonal forecasts hinge on a slick supply chain. You need to know exactly what steps are involved and identify any friction points before they become an issue. To make this possible, it’s important that you constantly check in on each stage of the supply chain to make sure everything’s flowing as it should be.
For example, if you find there’s a bottleneck during the manufacturing stage, you can address it quickly before it affects other parts of the supply chain.
Forecasting seasonal demand for your store
Your forecast isn’t set in stone, and one of the most useful things you can do is adjust the numbers as you get more information.
Right off the bat, you might realize that some of your variable expenses aren’t hitting at the right time, and you might want to move them around.
Later on, as sales and orders start to come in, you might realize you need to adjust your sales forecast, and your corresponding costs to fulfill those orders.
You might even realize that, yes, you do need to secure some business financing, and you’ll have a good idea of how you’re going to use the money, since you’ve already set a budget.
And that’s all OK.
In fact, it’s great, and it’s the best part of having an annual forecast in place for your seasonal business. Being able to adjust your plan, instead of hoping for the best when things change, will help you feel on top of your business finances all year round.
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Seasonal demand forecasting FAQ
What are the different types of seasonal forecasting?
There are several different methods for forecasting retail sales. Some common forecasting models include trend analysis, regression analysis, and time series analysis.
What is the difference between trend and seasonal forecasting?
The biggest difference between trend and seasonal forecasting is that trend forecasting tracks data that increases or decreases in a predictable way, while seasonal forecasting tracks data that repeats over a specific period of time.
How do you calculate seasonal forecasting?
- Set goals you’d like to achieve during your busiest season.
- Analyze past sales data to identify patterns.
- Tap into industry insights and competitor sales to predict what might happen in the upcoming season.
- Create a spreadsheet of your products or product categories.
- List out how many units of each you’re likely to sell.
- Calculate your total sales from the number of units you hope to sell.
How do you do a monthly sales forecast?
To do a monthly sales forecast, you need to look at historical data and identify any trends. You also need to consider any seasonal variations that might impact retail sales.