Demand forecasting- why it is important for every business?


An organization has to face both internal as well as external risks and under such conditions, they have to make crucial decisions for their business. However, the risks are uncertain and so as the results if they are not well organized. Hence, a demand forecasting method is essential to set a comprehensive plan for the services and product to reduce the adverse effects caused by the risks. What is demand forecasting? Learn more about it in this article.

Demand forecasting definition

Evan J. Douglas defines it has a process through which an organization can find demand values for the future. Other definitions define it as an estimation of product sale for a set future period done through an effective marketing plan.

Forecasting allows a business to take the following decisions related to products or services:

  • planning of production
  • raw material purchase
  • funds management
  • price estimation

An organization can take the above decisions by taking assistance from market research agencies or consultants. Moreover, they can utilize planning or forecasting software as well.

Important of demand forecasting

There is a significant need for demand in every business as it reduces the risks and helps them make better business decisions. It also helps them to take insights into the expansion decisions and capital investment of an organization. Below given points show its significance.

  1. Fulfillment of objectives

Every business has a goal and to fulfill those objectives demand forecasting is important. You can make an estimation of the product demand in the market through forecasting and set goals to achieve the target.

  1. Budget preparation

Forecasting has a significant role in budget estimation and revenue estimation. For example- if a product cost $10 and the expected demand is 10, 00, 00 units then the total revenue will be 10, 00,000. So, you will get an idea about what should be your budget.

  1. Employment stabilization and production

Forecasting also helps in recruitment activities. Moreover, it enables a business to control the production process which in turn reduces the wastage of the resources. Also, if the demand for a product rises you will need more labors and using demand forecasting you can analyze how many more labors are required.

  1. Expansion of organization

Once you imply forecasting of a product demand you can easily plan for further expansion of business if the demand is more than the expectation. Accordingly, you can expand the business without affecting the results of estimation.

  1. Management decisions

It also helps you make critical business decisions like capital investment, labor availability, the decision on plant capacity, the requirement of raw material for production and more.

  1. Performance evaluation

Demand forecasting helps you evaluate business performance. For instance, if there is less demand for a product you can take necessary actions that will help you improve the product quality and demand level. Also, you will be able to analyze what were the mistakes you did that results in poor demand levels.

So, these were the benefits of using demand forecasting plan. It can be done on local as well as an international level depending on the nature and area of the organization.