Forecasting is one of the most challenging tasks for your eCommerce business. Why? Because nobody can predict the future. Well, almost. And in order to make it as suitable for you as possible, we have a two-way forecasting for you.
- Active Forecast
- Reactive Forecast
There is a fundamental difference between both options. Some might want to use the Reactive Forecast only, others need to plan way ahead (e.g. Fashion industry) and use an Active Forecast, where you can plan any time period in the far future. Let’s have a look at both of them.
Something that is usually missing in all so called “Inventory Management” tools is an active forecast. The option to estimate sales in future periods, for example like Q4 in 2023 or Q1 and Q2 in 2024 is simply not given. Truth be told – it’s a forecast, but it is super helpful for anyone that has to plan ahead or at least wants to gain insights about his future purchases and revenues.
Some manual input is required, yes. Our tool needs to know for which period you intend to create an estimate order plan (and sales plan), what products you are targeting (any filter is available, single SKUs can be chosen or by category / sub-category or any other value that has been uploaded and created in the Product Catalog). Once your infos are set, our system will create a full forecast for exactly this period, forecasting how many units you will sell and how many units you need to order. You will also be able to review your total revenue plan for this specific period and make any adjustments you like (growth). All changes will be saved temporarily in this specific Active Forecast, but will not be transferred into your actual data yet.
Once the starting date of that period is hit, our tool will re-confirm with you if you want to overrule existing forecasts with your Active Forecast or if you want to continue with the basic forecast – the Reactive Forecast.
That’s the forecast most people are used to use that is usually recommended. You will see your current sales development and the Forecast will adjust daily, based on every single sale, recalculate it’s Velocity and predicted sales and stock level, and therefore knows, when you will have to order and transfer which quantity.
The crucial part here is the Velocity – the estimated sales per day. This value can be calculated in different ways:
- Moving Average Velocity & Seasonality
- Adjusted Velocity
- Manual Velocity
Moving Average Velocity & Seasonality
The perfect calculation if you have sales data of more than one year with ongoing sales. Based on the sales over one full year we have an average value (which is a bit adjusted with some calculations) and can create a seasonality for this product – including your recent marketing campaigns. As our system cannot determine if your peak in sales were due to an event or just because of it’s seasonality, there is no way to exclude events at this point; but this will be possible with every future event. This calculation is the most accurate one we’re using and is suitable for products with a sales history of more than one year.
This way of calculation is used by almost all tools. We’re checking the sales of the past 180, 90, 30, 15, 7 and 2 days and calculate a weigthed velocity based on this. The challenge is that based on these information it is impossible to calculate your seasonality – because we do not have the data of one full year. While Onboarding you will be guided through the setup: Products that have a sales history longer than one year will directly be calculated with Moving Average Velocity, while products with a sales history of less than one year will be automatically calculcated and forecasted with the Adjusted Velocity. Sure, you will have the option to adjust the weighting at anytime, before or while forecasting.
Explains itself – we usually recommend the Manual Velocity for some specific products:
- Products that are not sold (Packaging material, Flyers, etc.)
- Products that are new to your product range, but you do not have a relevant reference SKU in your system
If you want to learn more about our Reference SKU system to predict sales of products that you are going to launch in the future, please read this article.