What is Forecasting?
We use forecasting everyday, mainly in one particular area: the weather. It tells us to switch back to our heavy winter parka, scarf and gloves one day and then back to our trench coat and rain boots the day after that. Just as with the weather, you’re business can use forecasting to inform you on how to prepare for the future.
Hopefully with less ups and downs, your business can also use forecasting to predict revenue based on the previous year’s month, previous year’s quarter, or the whole previous year. This is difficult to calculate, and requires sophisticated predictive analysis that we offer through one of our premium plans.
You may be wondering how this can benefit your business, here are a few examples:
- If you’re doing all of your own production in house, then forecasting your sales will help you figure out how much material you should buy, and how much production staff to have on hand.
- If you’re buying inventory for a third party, especially if it’s food or drinks, forecasting will help you figure out how much to buy and avoid waste.
- As you grow your store, you may be looking for additional investment to increase production, get a bigger warehouse, or more server space. Whatever it is, your investor will want to see your revenue numbers and how you have projected in the future. A solid analytical backed forecast will help provide added assurance.
This merchant (shown in the graph below) sells knitted scarves. She is featured in a local arts & crafts show and magazine every November. The graph below shows her monthly fiscal projection. As you can see by the orange forecast line, the majority of sales are done from November to December with small blips in April and August. This indicates that the shop merchant should do a few things:
- Prepare for the busy holiday months by prepping throughout the year so that there is enough inventory and staff to ensure a smooth selling period.
- Try marketing campaigns like online advertising, email marketing, or social media at the beginning of the year when there are no or very little sales.
- Try offering a discount or limited time offer during the months that have zero sales.
- Offer a completely different product that may be seasonal to make up for the off season months or sell to another part of the world where it’s winter (Australia)
There are quite a few ways that forecasting can help grow your store. It can help you save money by planning ahead with production, inventory and staff. It can also help you put together an intelligent report to show potential investors and raise money. Furthermore, for a small business, it can point out times in the year when time can be spent marketing while other times can be spend planning for upcoming sale sprints.