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May 11, 2021
3 min read
Last update: May 16, 2024

Simple Inventory Forecasting Tips for Your Business

Maintaining the right amount of inventory allows you to keep your customers happy and fulfill your orders. But if you stock up on too much inventory you hurt your cash flow and risk products becoming obsolete while taking up room in your warehouse or stockroom. So how can you maintain the perfect balance? The answer is inventory forecasting.

What is Inventory Forecasting?

Inventory forecasting is the process of analyzing current trends and past and present data to make a prediction of the amount of inventory that will be needed to fulfill future orders.

Why is Inventory Forecasting Important?

Overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue, according to a recent study. If you don’t spend the time forecasting your inventory, you could be throwing away thousands of dollars each year. In addition, if products are sold out and people can’t buy what they want, customer satisfaction decreases, and they may go to a competitor to complete their purchase.

Benefits of Inventory Forecasting

Some of the major benefits of accurate inventory forecasting are:

  • More sales
  • Better cash flow
  • Higher customer satisfaction
  • Quick fulfillment of orders
  • Freed up storage space
  • Minimizing products being out of stock.

5 Tips to Help You Do Simple Inventory Forecasting

While there are tons of different tools, methods, and software options for advanced inventory forecasting, we’re going to focus on some simple tips.

  • Establish a baseline to create a sales forecast

Before you begin, look at last year’s sales and this year’s growth to establish a baseline of how much of each specific product that you expect to sell in the upcoming season, month, or sales quarter.  

  • Check your current inventory levels

Check what you already have in stock and compare it to what your forecasted sales will be. This will help you prevent overordering when it’s time to purchase additional inventory. For example, if you expect to sell 100 units of a specific item and when you check your inventory levels you find that you already have 65 in stock, then you only need to order 35 additional units. This will prevent you from overordering products that you don’t need.

  • Consider trends and other factors

Is there a holiday coming up or are your sales affected by seasonality? Are you planning a marketing campaign or a special promotion that could boost sales? Make sure to take these variables in account when doing your inventory forecasting. While not all situations are predictable such as an increase in demand due to a competitor going out of business or an influencer giving your product unexpected publicity, you want to allow yourself enough wiggle room to account for surges in sales as best as you can.

  • Maintain safety stock

Simply put, safety stock is additional inventory that acts as a safety net in the event of an increase in demand. It can help you prevent lost sales by reducing the likelihood of an item being out of stock. It’s important to keep a certain amount of safety stock in order to maintain customer satisfaction and avoid lost revenue. When doing your inventory forecasting, don’t forget to include safety stock in your calculations.

  • Determine your reorder point

Knowing the correct time to reorder more inventory is critical to successful inventory management. Be sure to factor in the lead time (the time it takes for stock that you order to physically arrive at your business).

Need to Stock Up on Inventory?

Don’t let lack of funding slow down the growth of your business. At SBG Funding, getting access to the cash you need to stock up on inventory couldn’t be simpler. Apply today to see how we can help.

For additional resources for small business owners, click here.

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