Are you doing everything “right” for your business but don’t know where you went wrong? Are your visitors not converting to customers? Are your monthly analytics constantly dropping?
If you have asked yourself these questions, then stick around to find out as we explore the answers for all these questions in this article, where we’ll explain how market forecasting is the defining factor for all these questions.
And how you can leverage your analytics to forecast market trends, customer behaviors, business directions, and much more. But before all that, let’s get our facts straight and know what even is market forecasting and why it is such an essential factor for your business.
What is market forecasting?
Market forecasting is a process of analyzing historical data, economic conditions, consumer behavior, and market trends to predict a particular market's future behavior and performance related to the demand, supply, pricing, etc.
It aims to provide valuable insights to make informed decisions about a business's operations, marketing strategies, investment, and overall business growth. Companies can gain a competitive advantage and adapt to changing market conditions.
Why is forecasting important?
We've understood what exactly is market forecasting but why is it important? Let's see:
- Understand Supply Demand - Predict changing demand for a product or service.
- Know Market size - Insights into the size and growth potential of a market.
- Strategic planning - Accurate market forecasting helps businesses make informed decisions about their strategic planning, such as product development, marketing, and investment decisions. With tools like Usermaven, getting data points for these factors have become fairly easy.
- Risk management - Forecasting allows businesses to identify potential risks and opportunities, enabling them to take proactive measures.
- Resource allocation - Through forecasting, businesses can allocate resources effectively, such as production capacity, inventory, and marketing budgets, by getting insights into future demand.
- Competitive advantage - Forecasting helps businesses gain a competitive advantage by enabling them to anticipate changes in the market and adjust their strategies accordingly.
- Budgeting and financial planning - Forecasting helps businesses to prepare budgets and financial plans by providing insights into expected revenue and expenses. Businesses can also extrapolate inflation rates to adjust their products' prices accordingly.
How to get started with market forecasting
The basic methodology for conducting a market forecast has the following steps:
- Define the objective - To help you select the appropriate data and forecasting techniques, identify the specific metric question or problems that need to be addressed through market forecasting.
- Gather relevant data - Collect both historical and current data on the market, competitors, consumer behavior, and other relevant factors. You can use various sources such as sales data, customer surveys, industry reports, etc.
- Choose the forecasting model - Select an appropriate forecasting model based on the objective, data availability, and level of accuracy required ranging from simple trend analysis to more complex regression models.
- Test the model - Validate the accuracy and reliability of the model using historical data. And adjust the model if necessary.
- Apply the model - Use the model to generate forecasts and make data-driven decisions. Regularly update and refine the model based on new data and changing market conditions.
- Monitor and evaluate - Continuously monitor the forecasts and compare them with actual results to assess the model's accuracy and identify areas for improvement.
1. Define the objective
It is the primary step to creating marketing forecasts and should be clear, specific, measurable, and based on the business or organization's goals. To get started, you can seek answers to the following questions:
- What is the purpose of market forecasting? Is it to forecast sales, revenue, customer demand, or another variable? What decision are you hunting to make based on the forecast?
- What is the time horizon for the forecast? Is it short-term or long-term? Is it for a specific product, service, or market segment?s
- Are you aiming for a high-level forecast or a detailed output by product, region, or customer segment?
- What measures are put in place to determine the accuracy of the forecast? Is it sales, revenue, profit, or some other metric?
- What data is available for the forecast? Is it reliable and quality data?
Once the objectives of the forecasts are defined and aligned with the business goals, you can establish clear expectations for the forecasting process.
2. Gather relevant data
Let's get this straight: No forecasting model will work without sufficient data points.
To predict anything about your business, you must have a solid inventory of data sets about your sales, traffic sources, traffic locations, which time your users are active, which feature of your service are they most interested in, what are the roadblocks they are facing, what is their journey before they finally make the purchase. And don't worry, these are just FEW of the many data points. Trust us, you'll need more!
The big question here is, where to get these data points from? The answer is simple: Through your digital data analytics tools.
If you're using data analytics tools like Usermaven, then you don't need to worry about tracking your data manually. You can simply sign in to your dashboard and access data of top sources, top locations, top pages, funnels, most used features, your active users, and your most engaged users. And this is just the tip of the iceberg. Book a demo to see what else can you get from this awesome data analytics tool.
3. Choose the right forecasting model
To generate accurate predictions, choosing a suitable market forecasting model is critical.
In order for you to choose the best forecasting model for your needs, you need to understand the data you have and the problem you are trying to solve. Some critical factors to consider are the complexity of the model, the accuracy of its predictions, and its ability to adapt to changing circumstances.
With the right model, businesses can generate reliable and realistic projections for their decision-making process.
4. Apply the model and analyze correlations
Identifying the relationship between different variables and how they impact the market is a game changer for businesses.
By analyzing the correlations between different data sets, such as economic indicators, consumer behavior, and market trends, businesses can better understand the factors that drive demand and supply in the market.
Businesses can also take proactive measures to mitigate risks and capitalize on opportunities identified by analyzing correlations.
5. Track and Monitor
Tracking and monitoring the marketing forecasts helps evaluate the forecast’s accuracy by identifying any potential issues.
Establish a system for tracking and monitoring the forecast through a spreadsheet, a dashboard, or a specialized software tool. It should be easy to use and provide visibility into the forecast accuracy and any changes in the underlying data.
Regularly compare the forecasted results to actual results. Identify any variances and the underlying reason, such as changes in the market, changes in customer behavior, or changes in the competitive landscape, to refine the forecast.
Communicate the forecast results to the involved stakeholders for informed decision-making. Continue refining the forecast to ensure accuracy by adjusting the forecasting methodology, incorporating new data sources, or updating the used assumptions.
Common forecasting techniques for Saas businesses
There are several forecasting techniques businesses can use to predict future market trends. The choice of forecasting techniques depends on your business needs. Below are some of the common methods to create forecasts.
Time Series technique
Time series techniques are commonly used to capture short-term and long-term trends in data and seasonality that may occur over a particular period. Some widely used time series techniques for marketing forecasting include moving averages, exponential smoothing, etc.
They can provide accurate forecasts of future values based on large amounts of historical data. And it can be a limitation when dealing with new products, markets, or industries where there may not be sufficient historical data available.
Time series techniques may ignore external factors that affect data, such as changes in the economy, government policies, or consumer behavior, which may limit the accuracy of the forecasts.
The Delphi method is one of the qualitative forecasting techniques. It gathers and aggregates the opinions of a group of experts to make a more accurate forecast.
Delphi method uses multiple rounds of anonymous questionnaires where experts provide their opinions and estimates on the variable under forecast. A facilitator compiles and analyzes the responses and provides feedback on the group’s overall response.
Revisions are made based on the feedback, and the process continues until a consensus is reached or responses converge to a stable result.
Statistical methods are also used for detailed, reliable, and usually cost-effective forecasting. Among many methods, here are the most common statistical methods:
Trend Projection - As one of the straightforward forecasting methods, trend projection forecasts the future values of a variable based on its historical trend.
The trend projection method finds its application where there is a clear long-term trend in the data. And no other factors, such as seasonality, affect the forecasted variables. This simple method is used for short-term forecasting and may not be as accurate for longer-term forecasting.
Regression Analysis - A regression analysis determines the relationship between two or more variables. Regression analysis is used in marketing forecasts to predict sales or revenue based on factors such as advertising spend, price changes, and promotions.
Benefits of market forecasting
Having learned about the basics of market forecasting, let's explore some of its benefits.
Insights into future trends
By analyzing past and current data, you can identify patterns and trends to make data-driven decisions and prepare for future opportunities and challenges. For instance, businesses can use market forecasts to determine their product or service demand and identify consumer behavior changes and market risks. Such insights help to course-correct marketing and pricing strategies and production levels to stay competitive.
Improved marketing strategy
With a better understanding of the market landscape via forecasting, businesses can sharpen their marketing strategy. They can reach their target audience with clear messaging and improved pricing across different marketing channels.
For instance, with predictive analytics tools, businesses can see if a product ad is bringing more customers to your pricing page, but they leave without purchasing the product.
They can identify the reason that stops the users from converting, such as the web copy may not be convincing, user preferred payment gateway might not be available, and more. With these insights, you can shift your focus where it’s needed to craft an effective customer journey and conversion funnel centered around your end user.
Moreover, market forecasting allows businesses to stay ahead of their competitors by anticipating changes in the market and adapting their marketing strategy accordingly. Companies can optimize their marketing spend, reduce costs, and increase ROI by leveraging market forecasting data.
Optimized product development
By analyzing trends in the market, businesses can identify new opportunities and areas of improvement in existing products and adjust product development plans accordingly.
It can help them avoid costly mistakes in product development with a proactive approach to avoid potential risks or challenges. By forecasting the potential success or failure of a new product, businesses can make informed decisions about whether to invest in its development.
With a market forecast, companies can realize more successful product launches, enhanced customer satisfaction, and business growth.
Market forecasts also help in budgeting and allow you to allocate funds based on sales, revenue, and expense forecasts.
You can make informed decisions about the different business segments, such as marketing campaigns, product costs, operations, enterprise tools, etc. Monetary decisions require businesses to be meticulous to avoid risks as much as possible.
Therefore, market forecasts lead businesses to manage their resources better and improve their financial performance.
Increase customer retention
With insight into changing customer needs and preferences, businesses can stay competitive by delivering value to customers and solving their problems with their products and services.
It leads to improved customer satisfaction and brand loyalty causing customer retention rates to improve.
With accurate cohort analysis and customer behavior, businesses can retarget the customer at the risk of churning to win them back.
They can also see the impact of different marketing campaigns and experiment with them to find the most effective for boosting loyalty and customer retention.
Better inventory management
Forecasting reduces inventory costs, streamlines supply chain operations, and increases profitability.
You can anticipate demand and have the right amount of inventory at the right time without facing under-inventory, which may result in losing the customer and excess inventory, which eats into a company’s profit.
Preventing stockouts and backorders creates satisfied customers. Market forecasts can help businesses direct and manage supply chain operations efficiently.
What are some limitations of forecasting?
Although market forecasting is a valuable tool, it has some limitations, as follows:
- Uncertainty - Despite the method of forecasting, forecasts are still an estimation of the future, which is unpredictable. Unexpected events or changes in the market may render forecasts inaccurate since they are based on historical data and assumptions.
- Data limitation - Accurate forecasts become challenging in cases with limited or inaccurate data. Learn how to deal with it here.
- Human error - Forecasting requires human input to collect and analyze data, create assumptions, and make decisions about which forecasting method to use. Human error can occur at any stage of the forecasting process, potentially leading to inaccurate results.
- Inflexibility - Once a forecast has been created, it can be difficult to adjust to changes in the market or new information that emerges. Businesses may make decisions based on outdated or inaccurate forecasts.
Forecasting is a smart business practice to maximize your sales by using data points to optimize your strategies. By collecting useful data and using it to extrapolate market trends, companies can design and improve their products to convert more visitors into buyers. While forecasting is an awesome way to predict future of your business, it also has some limitations which can be solved when you use a good analytics tool paired with a suitable forecasting model.
FAQs about market forecasting
1. What are the four major types of forecasts?
The four major types of forecasts include the following:
- Qualitative forecast - It is subjective and relies on expert opinion, surveys, and market research to make predictions.
- Time series forecast - It uses historical data to identify patterns and trends to predict future values.
- Causal forecast - It analyzes the relationship between cause and effect variables to predict future outcomes.
- Judgmental forecast - It is based on personal judgments and opinions of individuals with experience and knowledge in a particular industry or field
2. What are forecasting tools?
Forecasting tools are software that use various techniques and methods to analyze past data and trends and estimate future events, outcomes, or trends. Many industries utilize such tools, including finance, sales, operations, and marketing, to make data-backed decisions and plans. Some examples of forecasting tools are statistical models, decision trees, and predictive analytics software.
3. What are the basics of forecasting?
The basics of forecasting are to use historical data and statistical techniques to make predictions about future events. It involves analyzing patterns and trends in past data and using that information to create a model for predicting future outcomes.
Additionally, forecasting requires continuous monitoring and updating as new data becomes available and environmental changes occur.
4. What is the first step in forecasting?
Defining the purpose and scope of the forecast is the first step in forecasting. For this, you need to identify the specific aspect of the business or market needs, the time period of the forecast, level of required accuracy.
It is vital to understand the business objectives and external factors that may affect the estimates, such as economic trends, consumer behavior, and competitive landscape. Once these factors are identified, data collection and analysis can inform the forecasting process.