Learning how to forecast for seasonal demand
Depending on what you sell and the industry you operate in, seasonal demand might play a huge role in your financial planning and forecasting.
While we can’t predict the weather, seasonal demand forecasting is a crucial tool to explore options such as asset finance later down the road, as well as enjoy a greater level of customer satisfaction, and profitability, and help you keep ahead of the competition,
This type of forecasting can help you manage changes with reliable estimates, giving you a useful tool to chart seasonal variations and trends - but this can pose certain challenges to projections.
In this guide, the team at Time Finance will tell you everything you need to know about seasonality, some of the issues your business might face - and how forecasting can help.
By the end, you should be familiar with the main methods, so you can confidently introduce forecasting into your financial plans.
At a glance, we’ll cover:
- The definition of seasonality
- Why is it so crucial for businesses?
- What causes fluctuations in demand
- The challenges posed by it - and the benefits of forecasting
- How to forecast
- How Time Finance’s flexible solutions can help your business
If you’re looking for an alternative source of finance to help make those forecasts a reality, talk to our team about our wide range of solutions.
What is seasonality in forecasting - and why is it so important?
As the name suggests, seasonal demand occurs when your products decrease - or increase - in demand, in line with certain times of the year.
For example, factors such as national holidays and even the weather can have a huge impact on businesses, like a huge uptick in spending during December because of Christmas.
If ignored, seasonality can pose a challenge for businesses looking to forecast accurate numbers for the financial year ahead - which is why it must be factored into your forecasts.
We’ll explore this in the next section.
The power of seasonal demand forecasting
Seasonal demand forecasting involves analysing any seasonal variations or repeat patterns in customer demand and predicting them as part of a comprehensive report.
Although a seasonal demand cycle can be influenced by several factors, such as regional holidays, weather patterns, and popular trends, they can also be swayed by unique factors in your industry.
But whenever you plan to make a forecast, including seasonal demand is essential for anyone looking to assess and improve:
- Sales targets
- Inventory management
- Future performance
- Marketing campaigns
Challenges of seasonal demand
As with any method of forecasting, issues can crop up along the way. So make sure to factor the following points into your planning ahead of time.
Seasons can change from year to year
Although seasons come every year, it doesn’t mean that they have the same patterns each time.
Holidays can switch days, weeks or months, with some only happening on certain years. As such, relying on historical sales data to forecast seasonal products could be a costly mistake, especially with the rise of data science - so ensure you check upcoming dates and incorporate this into your planning.
Another factor is weather. Issues such as global warming can have a huge impact on industries such as construction, due to winters not being as cold as they were in the past. This means many sectors are able to work over months that usually would have been quiet, so this must be factored into your forecast.
No previous sales data
But what happens if you’re starting completely from scratch? Sometimes, seasonal forecasting requires wider research and ideation to help create a bigger picture - including new goods and popular trends to give you a greater reach.
As a result, seasonal forecasting may have to be taken with ‘a pinch of salt’.
There might be times when a product category doesn’t typically peak during a projected period, but has specific products whose demand does.
As they aren’t blatant candidates for seasonality - products that might be overlooked during peak holidays could have surprise sales increases, even if the two aren’t correlated.
For example, batteries might not be deemed a Christmas product, but during the holiday season, the need for them shoots up. This can cause problems for businesses if there isn’t enough product to meet demand.
Maintaining a positive cashflow in the slow and busy months
But industries such as construction, for example, can experience slow periods. This means cyclical needs must be taken into your forecasting account, as well as taking the time to understand your financial commitments and your outgoings during this time.
If months are deemed quieter, construction business owners are advised to spread out the workload throughout the year - even during peak season when the majority of your projects are likely to be finished.
In busier times, it’s crucial to factor in aspects such as:
- What contractors might you need?
- Is there any stock you need to buy?
- Do you need to pay extra staff?
All these must be included in your forecasts to maintain cashflow.
But on the other hand, it’s still important to anticipate financial outgoings during the off-season.
Usually, the slower months are perfect for getting admin and other things boxed off - especially if you can’t get around to them in the busy season.
But that doesn’t mean completely dropping off - or putting on - your most challenging tasks during this time to accommodate a gap.
Ensure there is still a steady flow of cash to accommodate seasonal drop-offs, whether that’s through reserves, a financial solution or evenly plotting out work.
What does seasonal demand forecasting entail?
Seasonal demand forecasting can be broken down into 4 easy steps.
While your business might not need each one, depending on the size of your company and the industry you operate in, these are some ‘best practices’ to keep in mind.
1. Identify the products whose demand is affected by the season
Firstly, you need to spot demand patterns for products that regularly occur over time. You can do this by asking the following questions:
- Do you notice a consistent pattern over time? If there is potential seasonal demand, you can double-check it by analysing the association between each year.
- Are you sure that the shift in demand is a seasonal variation - is it a rising or lapsing trend?
2. Know your customer’s needs
As you prepare to estimate seasonal demands, you should thoroughly understand your clients' seasons.
Look at previous trends or market research from your audience and note how things have changed year on year.
What has impacted their habits? Are there any major correlations or discrepancies?
3. Supply chain monitoring
When predicting seasonal demand, make sure to consider your supply chain throughout. That might mean factoring in possible overdemand and the consequences, such as longer shipping durations, delivery slots or stock shortages.
4. Describe current trends in your reporting
Looking at historical seasonal demand, you can get a fair indication of what sales might be like in your upcoming forecast, but it also has to account for current trends, shortages, and consumer needs too.
All these can have a major impact on overall inventory, cashflow, and business expenditure, so making sure they are integrated into your planning can help create more accurate seasonal forecasts.
Improve your output with help from Time Finance
Wherever your business is forecasted to go, Time Finance has an impressive range of products to help you explore new and exciting avenues.
To find out more about how Time Finance can support you and your business with leading financial solutions, get in touch.