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The average profit margin for online retailers is 10%, but this average changes based on your niche and the general market activity. If you want to optimize your business operations, to say nothing of your potential business growth, it's important to know every possible detail of your business's past, current, and future metrics.
eCommerce demand planning is an established process for using your currently available insights into past market behavior in and around your business to predict the future. Without these insights, you could make costly hiring and inventory mistakes that eat into that 10% profit margin. But with better planning, you could grow your business and your earnings.
What Is eCommerce Demand Planning?
eCommerce demand planning, or demand forecasting, is the practice of using past data and analytics to predict future orders and business activity so you can accurately:
- Order inventory
- Prepare for shipping, logistics, and other ancillary operations
- Market your products and services
Online retailers can assess their current business performance and past order histories to anticipate future demand. This minimizes the risk of either underordering inventory (resulting in missed sales and customer frustration) or overordering inventory (leading to excess stock and related expenses). Through detailed eCommerce demand planning, you can anticipate the likely demand for specific products and services or the demand your store will see overall for an allotted period.
However, planning goes beyond simple forecasting. It involves placing orders and scaling operations up or down to meet anticipated demand. Every business can benefit from using four types of demand forecasting.
- Macro-level forecasting so you can look at broad demand estimates across the entire industry or niche
- Micro-level forecasting, or examining your own business analytics and order trends to anticipate future activity
- Short-term forecasting, which looks at a quarter or annual period ahead. This is vital for most online retailers who see significant sales swings based on seasonality.
- Long-term forecasting, which looks at macro or micro trends years into the future so stakeholders can develop business strategies.
Related: Guide to Holiday Shipping: How to Manage the Busy Season for Your Store
Your business can use all of these forecasting models. For example, you might develop a macro-level short-term forecast to anticipate major holiday shopping trends for the end of the year. Alternatively, you might create a micro-level short-term forecast so you can base anticipated 2023 sales on 2022 records and your growth from this year. Developing macro-level long-term forecasts can help you anticipate broad industry trends that will impact your own business and your competitors. A micro-level long-term forecast can help you anticipate the pros and cons of implementing different business changes.
Benefits of Stronger eCommerce Demand Planning
If you've ever ordered inventory in anticipation of a peak sales period, you've experienced the worry of potentially guessing wrong. What if you order too little and miss out? What if you order too much and get saddled with products no one will want in a season or two? What if you place an order too late, facing both manufacturer delays on one side and strict deadlines on getting customer orders out for the holidays?
Developing a methodical eCommerce demand plan helps alleviate those worries. Not only can you be more certain that you're making the right call for your business, but there are tools you can rely on throughout the decision-making process. Demand planning can take time to set up though, so make sure your decision-making team is well aware of the benefits and approves of the strategy. Take a look at the following key benefits that include newfound (or enhanced) abilities.
Predict Orders and Manage Your Inventory
The primary benefit of eCommerce demand planning is being able to place orders with greater specificity and confidence. With analytics software and monthly or annual order records, your team can forecast demand on a monthly basis, for your peak selling season, or even for the year ahead. With this information, you can:
- Comfortably access bulk order pricing by buying ahead
- Plan your 3PL and warehousing services so you don't have to pay for excess service plans or make costly add-ons later
- Measure how reality compares with your forecast models for even more accurate orders the following year
- Avoid spending limited funds on inventory that you now know won't sell
Create Marketing Strategies That Match Demand
With in-depth demand planning, especially if you use both macro and micro models, you can anticipate how the market will shift and how your loyal buyers will respond to those changes in the market. When the market data for your niche indicates that one product will become a trending item, you can start crafting engaging content around that particular product. Conversely, if the data shows that last holiday season's big-ticket item is still popular but no longer a big moneymaker, you can recycle last year's content but spend most of your efforts on other campaigns. Forecasts also give you early insight into likely keywords for PPC campaigns or let you plan out early-bird specials so you can draw out shopping for more consistent revenue.
Reduce Lost Sales
This ties into both inventory management and marketing campaigns. When you have more insight into what is likely to sell and who is likely to buy it, you don't just make good decisions. You avoid making costly mistakes. Consider the problems that can arise without eCommerce demand planning:
- You buy inventory you may have to later offload at a severe discount.
- Some potential target markets won't align with your planned campaigns, and you may lose those shoppers to your competitors.
- You run out of product, leading to shoppers visiting your page, seeing a grayed-out option, and leaving disappointed.
Improve Customer Satisfaction
Ultimately, better planning and fulfillment create more customer satisfaction—and it does so efficiently. You can meet their product demands, create more engaging marketing campaigns, and sell products at the prices customers expect and appreciate. The added efficiency to your operations helps you stock the right goods in the right varieties, and you can spend more time and attention on ensuring the products get to their destination on time. The more efficient overhead may even allow you to hire more support staff or invest in third-party customer support capabilities, further improving experiences.
Make Better Pricing Decisions
Demand planning models, especially if you use software supported by AI or machine learning, don't just look at past performance to predict future performance. They can give you insight into the likely result of different changes. You can anticipate how a price increase affects total revenue and sales volumes, at what price customers are likely to go elsewhere, and what effect the costs of your behind-the-scenes services (shipping, warehousing, insurance, etc.) will have on your ability to offer low prices and maintain your desired profit margins.
Respond Faster to Changes in the Market
eCommerce demand planning gives you a head start on responding to changes in the market because you already have insight. You have the data, forecasting tools, and reports to have a foothold on the anticipated macro and micro behaviors in the short and long term. By continuously feeding your planning models with new data, you can see where reality deviates from your plans and then quickly shift your strategy to get back on track. Competitors making inventory choices with less insight will not respond as quickly; they may not even notice that changes in the market are taking shape.
How to Efficiently Manage eCommerce Demand Planning
Each of these benefits is a game-changer for any online retailer that takes demand planning seriously. But knowing how to get started matters even more than deciding to start. Take these steps to better manage eCommerce demand planning:
Get Funding to Buy Planning Software, Inventory, and Marketing Resources
eCommerce demand planning takes resources—to set up the software that can give you the insights you need and to act on those insights by making advance orders. Staying constrained by your current revenue or cash flow will limit how quickly you can grow operations. After all, low off-peak revenue won't give you the spending power you need to plan for an explosive holiday shopping season.
Related: Optimizing Cash Flow for High-Volume eComm Stores
Supplement your planning potential with third-party financing. You can consider offers from eCommerce platforms like Amazon or apply for funds from third-party growth capital services. When you can secure funding that has flexible repayment terms at a low rate—especially if they don't restrict what you can use that funding for—you can take full advantage of your analytics and set your plans in motion sooner.
Measure Performance Within and Across Sales Channels
Popular storefronts often have some degree of built-in analytics capabilities. But each of these dashboards only gives you insight into the order histories of each platform in isolation. It's better to analyze your order histories and sales performance in aggregate, not just on a per-platform basis. This lets you decide which platforms to make orders through and when you need to order inventory from third-party sources for in-house fulfillment.
Compare Your Sales Against Your Competitors' or Industry Data
Prioritize macro-level forecasts when you can. Having a solid understanding of your market's performance and changing trends will help you identify overall changes in demand and how new products are performing. These insights can also help you form competitive pricing strategies, decide which niches are too saturated for you to make a profit, and more accurately forecast demand from new customers.
Get Data Insights Across All Parts of Your Supply Chain
When you're demand planning, don't stop at analyzing customer behaviors. Take the opportunity to assess how all parts of your lead generation and order fulfillment operations are performing. For example, you might see that one of your suppliers has historically struggled to meet your needs. If demand is increasing, then you certainly need to find alternate suppliers. If you're over- or underutilizing 3PLs or shipping services, you can readjust what you spend and which services you pay for in advance.
Make eCommerce Demand Planning a Bigger Part of Your Business Operations
Don't operate your business in the dark or close to the line. With growth capital financing, you can obtain the forecasting software you need to plan out short-term and long-term demand changes, order your inventory in advance, and start creating marketing campaigns that engage new shoppers. At Onramp, we make it easy for online retailers to apply for funds and grow their businesses. Our repayment terms are simple: 1% of sales volume, so you don't have to pay the funds back when you aren't making money. Reach out today to get an offer and see how our funds figure into your planning.
