What Factors Influence Demand Forecasting and How to Optimize the Process?

Food businesses are getting in on the action and trying to estimate the future consumer demand to supply products at the right time. With fluctuations in consumer demand, it becomes difficult for retailers to maintain their inventory with the right amount of stock, thus avoiding overstocking and understocking. Tracking data over all the sales channels is necessary to generate a correct estimate of demand forecasting. This prediction becomes an invaluable resource for the companies as they can gauge the sellability of particular products and maintain stocks accordingly. 

What is demand forecasting?

Demand forecasting is the method of comprehending and estimating consumer demand for smart decisions regarding supply and demand, cash flow, profit margins, capacity planning, capital expenditures, etc. Demand forecasting can assist you in predicting the total sales and income precisely, for a specified period in the future, by analyzing the past sales data. For accurate forecasting, businesses need to consider all factors influencing demand. 

Demand planning and forecasting software can aid businesses in preventing overproduction and underproduction. For a proper, systematic, and scientific approach, demand planners need to identify what they are calculating and the time duration, factors influencing demand, and the type and method of forecasting and then gather, analyze and draw conclusions. 

Factors Influencing Demand Forecasting

Several factors affect consumer demand, and they have a significant role in predicting demand. Let us take a look at the factors that impact demand forecasting.


Competitors who provide the same product or service as you enter or exit the market affect demand. Demand can significantly drop or become high. If a new competitor enters the field and starts to do well, it can become challenging for the already established businesses. On the other hand, if an already established competitor leaves the market or doesn’t perform well due to substandard products and services, other companies may experience a boost in demand as consumers transfer to them.


Demand changes with seasons. A business can experience cyclical sales or have a peak season of booming sales during a particular season, and the sales may dwindle or slow down in the next season. Some demand forecasting instances of seasonal sales include products required during particular seasons such as boating gear in the summer season, costumes and candies during the holiday season such as Halloween, or events such as the wedding season. 


Economic conditions can have a significant influence on demand forecasting. For instance, if the economy suffers from a recession or depression and lesser people are working, the demand for luxury items would probably fall. In contrast, the demand for low-priced goods is likely to get high. 


The place where your customers are located and where the production process takes place, goods are stored, and orders dispatched have a significant impact on demand forecasting. Enterprises need to carefully plan the locations when selecting geographic locations for the supply chain. 

Kinds of Goods

Each product and service has different and unique demand forecasting. This is because the sellability and need for every product are different. For instance, forecasting for products with a short life span should be exact, or the products may rot and decay in the inventory. Correct demand forecasting can be done for a subscription box that is shipped to the same customers each month at a particular time, assuming that customer retention is steady. 

How to Get Better at Demand Forecasting?

You can follow the steps mentioned below to predict demand accurately and reap its benefits.

  • Fix Your Sales Goals

    – Be clear about your goals before you start to gather or analyze data. By collecting data only, you won’t be able to accomplish anything. So, you should identify your goals and then begin forecasting.

  • Collaborate with Stakeholders

    – When you have decided on your aim, you need to involve everyone in your team, from the sales team, marketers, development, and research to the leaders. 

  • Capture required Data

    – Select the demand forecasting and collect data. The more the amount of data, the better the results will be. As both internal and external factors affect demand, it is ideal for collecting data from within your organization and outside it.

  • Analyze Data

    – Once the data is collected, you need to analyze the data with demand planning and forecasting software and recognize trends and patterns. AI-based systems can quickly provide insights from the data collected. 

  • Drive Results

    – What steps you take from the conclusions to improve your business strategy is essential. It may benefit your business and boost your income, so you should plan out your business operations and align them with your forecasts. For instance, if there is an increase in demand for a particular product, you should increase the inventory stock to avoid stockouts. Or, if a product experiences seasonal demand, then make sure to maintain high stocks during that period. 

Benefits of Demand Forecasting

  • It is convenient to structure your budget for purchases in your product line. 
  • After you have predicted the demand for a particular product, it helps you set the price for the product and develop a pricing strategy.
  • You can maintain an optimum inventory and reduce the expenses behind overstocking. Demand forecasting informs you what product you will need and when.
  • You can reduce backorders with efficient predictions. Backorders lead to customer dissatisfaction, and you can avoid it by maintaining the correct stock for popular products.
  • You can save up on restocking. You do not need to pay extra charges for production and shipping to suppliers if you have accurate demand predictions beforehand. 

Proper demand forecasting can be of great assistance to your company. By estimating demand, eCommerce businesses can understand where they stand and what the future holds. They can get insight into the stock in inventory and know when they need to place replenishment orders to meet consumer demand at the right time. 

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