When exactly is the best time to use a seasonal forecast?
Is it only in the fourth quarter? Back-to-school time? The summer? Only certain months of the year?
Let’s take a look at what exactly a seasonal forecast is, and when the best times to use it is. You will see that it is definitely not just for the Christmas holidays or peak times of year. If you properly mine your data, you will see that seasonal forecasting is something that you can use year-round to maximize profits and optimize your inventory.
What Is Seasonal Demand Forecasting?
The forecast describes predicted future sales.
The forecast is calculated using the sales velocity and the sales trends in recent months (are sales increasing or decreasing?). Sales velocity is the rate of sales excluding out of stock days. Seasonal products emphasize the sales trends from the prior year rather than the most recent months.
With seasonal forecasting for June 2024, we will reference June 2023 and June 2022. A seasonal forecast picks up on sales that spike or dip at certain time each year. In this case, we want to know what effect the time of year has, rather than emphasizing what happened during the last few months.
Default forecasts are not the same as seasonal forecasts. The default forecast emphasizes trends in the last few months, but the seasonal forecast looks sales twelve months ago.
When To Use Seasonal Demand Forecasting
Use Case for Items Intermittently Available
You carry t-shirts in your eCommerce site. In February, you relaunch your famous “Erin Go Bragh” t-shirts for a St. Patrick’s Day promotion. How will they sell with this relaunch after not being available for sale for several months?
In order to forecast that, you need some sort of sales history, preferably for that exact item twelve months prior. You can see the number of units sold or any growth rate year over year. This is one easy way to forecast holiday- or season-specific items.
Items Available Year-Round with a Different Selling Pattern
Imagine you carry grilling accessories in your inventory. They sell well during Memorial Day and other summer holidays. These are not fourth-quarter items, but are usually tied to specific times of the year.
If you use regular default forecasting, you will miss out on some of the variations that you see at those peak times of year. The seasonal forecast can pick up on the summer holidays for the following year.
If you are a retailer is going to a trade show, having a unique pop-up, or a big promotion every year around the same time, these are also times to consider seasonal forecasting. Your sales are higher in those months, and that can be a time you will want to use that seasonal forecast so you are ready for spikes in demand.
As you can see, seasonal forecasting is not just for the fourth quarter. Take into consideration re-launched merchandise, intermittent-selling items, or other big promotions. You will see careful seasonal forecasting will help you be better prepared to sell your inventory at special intervals and avoid overstock or stockouts, thereby maximizing your revenue.