Methods for forecasting e-commerce sales

The e-commerce industry is growing at a rapid pace. Many companies, recognizing its potential, decide to expand in this direction and sell through this distribution channel. However, without a reliable analysis of individual financial or non-financial data, it is much more difficult to develop a proper company strategy and respond to changes in demand. That’s why it’s so important to know how to forecast sales, and in this article, you’ll learn some methods to use in your business!

Forecasting E-commerce Sales – what is it?

E-commerce sales forecasting is the process of predicting the future revenue of products or services based on various business data. It facilitates making the right business decisions. Depending on the area of interest, an effective forecast will allow, among other things, to:

• Develop a sales plan and its goals;
• Plan the company’s budget, for example, for marketing activities;
• Select the right pricing strategy;
• Develop various sales channels;
• Hire and train employees, e.g., customer service.

Variables in e-commerce sales forecast

What internal and external factors should we consider when forecasting sales? Here are some of them:

INTERNAL FACTORS

• Quality customer service and customer experience at every touch point and stage of the customer’s experience with the company;
• Prices of products and services on offer;
• Lead time for orders and delivery of goods to customers;
• Internal communication;
• Employee motivation and satisfaction levels, employee turnover;
• Number of employees;
• Marketing and sales activities and their outreach;
• Distribution of goods;
• Degree of automation of processes in the company.

EXTERNAL FACTORS

• Quality of customer service from competitors;
• Prices of competing products and services;
• Customer loyalty and feedback on the company’s products and services;
• Quality of competitors’ products and services;
• Activities of rivals in the market in terms of promotion, communication and sales;
• Market trends shaping demand;
• The impact of the macroeconomic situation on individual processes and costs;
• Sales results from earlier periods;
• Changing regulations.

Sales forecasting methods

There are many ways to do sales forecasting. These include:

• Analysis of Macroeconomic indicators

It allows for the study of business cycles, which can indicate certain sales trends.

• Delphi method

It is based on the knowledge and experience of experts in the field of sales strategy building.

• Running simulations

Gathers information by recreating the sales process as a market experiment, e.g., new product development uses previously unused online channels.

• Market research

It involves gathering information from potential customers about their realized or unconscious needs, and desires. Based on surveys, observations, etc. It is possible to determine whether there will be sufficient demand for a product or service.

• Time series forecasting

It’s a method of analyzing past data to then make predictions of future performance based on that data.

Advantages of e-commerce sales forecasting

Why use a sales performance forecast? Here are a few reasons:

• Facilitate the achievement of set strategic goals;
• Better organization of operations by increasing product availability, speeding up lead times, and higher quality service translates into customer satisfaction and building customer loyalty to our company;
• Customer satisfaction and better organization also contribute to higher revenues;
• Identifying and understanding customer behavior;
• Selecting an effective pricing strategy – setting a price level that is appropriate for the target group;
• Controlling market changes makes you react faster and make good business decisions;
• Effective management of the team – a study of commitment or satisfaction of employees identifying their needs to create conditions for more effective work and development. In addition, it can reduce costs (recruiting and hiring a candidate is much more expensive than retraining those already employed).

Disadvantages of e-commerce sales forecasting

In turn, what obstacles do you have to face if you want to conduct such an analysis?

• Lack of enough data or incomplete data – if you are just starting your business, you will not be able to make a reliable forecast of sales results, taking into account a long enough period. You can analyze your macroenvironment, competitors, etc., although keep in mind that without your data, the results may not be fully objective. It’s also worth remembering to verify the reliability of the information you’ve obtained and whether it presents the whole picture of a given sale;
• Technology – without appropriate programs to collect and analyze data, e-commerce sales forecasting will not be possible. This requires investment in IT tools, for which there are not always funds;
• Subjective interpretation of results – this limitation is due to human nature and the fact that our evaluation is often marked by emotions, expectations, and misconceptions. Such an attitude affects many spheres of life and is associated, among other things, with the so-called Dunning-Kruger effect, which manifests itself in exaggerated certainty about the decisions we make;
• Lack of clearly defined goals and strategies – the implementation of sales forecasting must have a rationale and meet certain objectives. This way you will know how to manage the whole process, what to pay attention to or what to improve. Analyzing without an action plan can cause chaos and, as a result, will not contribute to the development of your business, but only waste time, money and other resources.

Summary

Business analytics and sales forecasting are now an essential parts of the growth of e-commerce. The capabilities of the methods that determine changes in demand enable better decisions and bring in higher revenues, building a competitive advantage. However, this solution requires possessing sufficient IT tools and knowledge to correctly draw conclusions and use the collected information in your business.

Read also: Negotiating remote work with an employee, how to do it?

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