Sales Forecasting Tools Every Retail Business Needs
Sales Forecasting Tools Every Retail Business Needs
While it can be impossible to lay out any straight path to success, one thing remains true: failing to plan is planning to fail. And when you’re a retail business in such a turbulent market, having effective sales forecasting tools at your disposal is arguably one of the most pivotal ways to ensure your success.
With more than 1 million brick-and-mortar retail stores and 1.8 million online retailers in the U.S., the competition for consumer attention and loyalty is fierce. Inventory issues not only negatively impact your reputation, customer satisfaction, and bottom-line, but they also send shoppers to your competitors who are just a few blocks or a few clicks away.
Accurate demand planning and forecasting ensures these challenges remain simply nightmares and not realities. In this blog, we’ll share everything you need to know about the most important sales forecasting tools and how you can leverage them to achieve the goals of your retail business.
Sales Forecasting: What It Is and Why You Need It
Let’s kick it off with the basics.
Sales forecasting is simply the prediction of your sales (i.e., how much you’ll make this week, quarter, or year) based on your previous history.
While sales forecasting software can help automate the process, it’s not a one-size-fits-all solution. Each retail business is unique, with its own set of variables and circumstances that impact demand, such as seasonality, market trends, and competition. To implement effective sales forecasting, businesses must take a more customized approach that accounts for the specific needs and characteristics of their own landscape.
With accurate sales forecasting, you can:
Identify market trends or shifts
Stay ahead of customer needs
Outpace your competition
Analyze sales team performance
Maintain optimal inventory levels
Make more profitable decisions
Retail businesses that are constantly planning ahead are more likely to secure future growth and success no matter what challenges lie ahead.
Sales Forecasting Tools for Your Business
So, how do you put together the most effective sales forecasting strategy possible? By using these fundamental sales forecasting tools!
Historical Data
The first fundamental sales forecasting tool at your disposal is historical data. Why? Because gathering the best historical data you can find gives you the strongest starting point for understanding your needs and your customers’.
Always look at sales builds from week to week or month to month to capture seasonal selling curves. Additionally, depending on where you’re selling in, you may want visibility into sales per store per week (SPSPW). This allows you to better forecast any new selling locations that have been added.
Remember, getting down to the item level with your historical data will help you accurately plan your inventory by item as you continue to grow.
Demand Forecast
Once you have your historical data documented, demand forecast is your next step. You’ll want to build an item-level sales demand forecast using the historical data as a starting point. Be sure to make adjustments based on what you know is changing in your business going forward.
Let’s break this down with an example.
If you’re tracking a 5% growth year-over-year, you can apply that to your item-level sales forecast as well. If your assortment is changing, you can take the data you have and make the most informed estimate on how the assortment changes will impact your sales forecast.
Alternatively, maybe you’re growing a new category and want to reflect some of the cannibalization that will occur (not tasking each item in that category at the topline 5% growth, for example, but maybe having them grow by 3-4%, so the category still sees incremental growth.)
Speaking of categories, you’ll want to roll up key categories or attributes to make sure the way you’re planning those makes sense.
Identifying and understanding your demand forecast can help you better plan for bumps in inventory demand and slowly transition out products that are no longer profitable.
Reconciliation Tool
Once you create your demand forecast, you’ll want to clean up shop so-to-speak by ensuring what you’re doing currently aligns with what you want to be doing.
Rolling up your item-level sales forecasts and reconciling that with your topline sales plan will ensure that the inventory you’re buying will enable you to reach your sales and margin goals.
Note that this process may take some time to adjust your tops-down guidance with your bottoms-up roll from the item level. But having an Excel tool to specifically for this purpose ensures you have the information you need to make the best inventory decisions!
In-Season Reforecasting Tool
Though this is technically the last tool on our list, it is certainly no less important!
Managing your sales demand forecast is an ongoing process. Even with the best upfront planning, there will still be outliers or surprises that you’ll need to react to in season.
By consistently updating your demand forecast and getting visibility to your new bottoms-up sales and inventory forecast, you can better manage inventory spending and give stakeholders a more realistic financial picture of progress.
(At Boon, we often create open-to-buy tools for our clients to help them manage this process!)
Forecast for Success with Boon
When done right, sales forecasting is one of the most vital assets for retail businesses. It helps set the stage for informed decision-making, especially around your inventory, production, and marketing strategies.
Not excited about doing the forecasting yourself? Don’t let that stop you from getting the support you need to achieve your goals!
At Boon, we understand that no two retail businesses are alike. It’s why we prioritize a tailored approach and work closely with our clients to create customized demand planning solutions that meet their specific needs and goals. Book an introductory call with us to learn how we leverage our own sales forecasting tools to give retail businesses more clarity and confidence!