Seasonality is an important part of inventory management. Seasonality is a certain time series with repetitive and predictable patterns of demand. In simple terms, it is any predictable change in, or pattern of sales, that recurs every calendar year.
Seasonality includes fluctuations based on the changes in the weather or an increased demand over a holiday season. Understanding these fluctuations and preparing for them will not only help you maximize periods of high demand, it will also help you stay competitive when things slow down.
The Significance of Forecasting
Inventory forecasting involves making informed predictions that allow you to effectively make decisions regarding your inventory reorders. There is nothing worse for an e-commerce business than running out of stock. Being unable to fulfill customer demand will not only aggravate your existing customers, it will prevent new visitors from returning. Simply put, running out of stock makes it easy for your competitors to attract your customers! Do not do them any favors!
Inventory forecasting can not only help you meet customer expectations, it can help you avoid storage fees, improve the relevance of your product offerings, and help you create more impactful advertising campaigns.
Staying on top of your forecasting is more than just placing regular orders when your inventory hits a certain level. It means paying close attention to your data and adjusting your approach as necessary.
Know your data
There are many data points that will help you plan and prepare for the effects of seasonality.
One of the first things you should know is your sell-through rate. Be sure to go back as far as you can with this information. Look to see if sales numbers repeat themselves at the same time of year. Do your numbers go up in the springtime and take a dip in the fall? Do you sell more during a particular holiday season than you do during others? Look for any sales spikes or dips that are outside the realm of your normal sales patterns. Knowing this information will help you understand exactly how much to order. As mentioned, running out of stock is a disaster but carrying too much inventory is not good either. Warehouse space can be expensive and the longer you carry extra inventory, the higher your storage fees will climb, reducing your profit margins.
An understanding of your current and historical sales data, including any recurring changes in demand, will help you prepare for the future. To simplify the process, try using a forecasting tool.
Know your timing
Understanding your sell-through is one thing but you also need to be aware of your lead time. This is the amount of time it takes between placing an order from your supplier or manufacturer and receiving that order.
Look at past order information to determine your lead time and account for this when making your orders. It is also a good idea to calculate lead time demand at the same time. Lead time demand is the demand for your product that takes place during the lead time. Again, these numbers are important to calculate as they can help you maintain customer satisfaction and maximize your warehouse space. To determine your lead time demand for each product, multiply average units sold by the average lead time (in days) and divide that number by the length of your forecast period (in days).
Once you have calculated these numbers, you can begin to make decisions about when you should be purchasing for the next season or predictable sales increase. Purchasing too early takes up room in your warehouse and increases your storage costs and purchasing too late can lead to even more costly stock-outs.
Make sure when restocking that you give yourself a little bit of extra room. This means calculating your safety stock. Your safety stock is an extra number of products that will act as a buffer, preventing you from selling out during unexpected peaks or delays in your restock shipment. There are lots of formulas out there that can help you calculate this number but one of the simplest is the following: the square root of your lead time demand, multiplied by 1.65.
Helpful Hacks to Avoid Seasonality
Seasonality includes sales spikes that can increase your revenues but along with these periods of increased demand comes lulls and slow periods. While it is important to be prepared for high demand, it is equally important to be prepared for dips in demand.
You will not be able to avoid seasonality entirely but there are lots of things you can do to mitigate any potential losses and stabilize your sales all year round.
One of the most impactful ways to create strong sales is to diversify your product line. This is not a simple quick fix but it is a move that can set you up for long-term success. Offering a wide array of related products will increase the likelihood that you will have an evergreen product in your line that will continue to sell well when your other products experience stagnation.
You can look to offer products that relate to your current offerings but have more appropriate uses in the seasons opposite them. For example, if you are a company that sells snowboards, consider adding branded sun protection products. These products are just as necessary in the summer as they in the winter. Depending on your business plan and your vision for the future, you could then grow into more related areas like skateboards or even surfing gear. Do not be afraid to think beyond your current market category.
Package for Holidays
Some products just need a little help. Sometimes sales have less to do with the product and more to do with how it is packaged.
While it takes a small financial investment, changing your packaging to match the seasons can go a long way to improving sales. A product that normally sits in a warehouse waiting for its peak period to return can experience a higher sell-through if packaged and marketed for a particular holiday season. This will improve your revenues, reduce storage fees, and clear up space in your warehouse.
It sounds simple, but sometimes customers will avoid a product that does not look like it is appropriate for a particular time of year. Changing the packaging can help to change their minds.
Highlight all the uses
If your products have different uses at different times of the year, it is important that you emphasize that. Some products will be more obvious than others but if you are having a hard time identifying alternate uses, spend some time reading your product reviews or the product reviews on similar products from your competitors. You may discover that a customer has found a use for your product that you had not imagined. Leverage this use by adding it to your marketing strategy.
Sometimes it is not the use itself that changes but the sentiment behind the uses. Do you sell decorative crystal vases? Point out that they make a great Mother’s Day gift or that they are great for holding flowers received on Valentine’s Day or upon high school or college graduation. Crystal is also the traditional gift for a 15th wedding anniversary. Some of these uses may feel like a tiny niche but appealing to that niche can make all the difference to your bottom line when things start to slow down.
Understanding which products sell, and why, can improve your sales all year round by giving you the basis you need to increase the effectiveness of your marketing efforts.
When the season starts to shift away from your product, it can be smart to run promotional giveaways. This works to your advantage in a few different ways.
First, it helps to keep you front of mind. By reaching out to your customer list through an email campaign and offering off-season giveaways, contests, and promotions, you are reminding your base that you are still there, and you are still in operation. Even if they do not need that product at that exact moment, they are likely to need it in the future and stirring up excitement for your brand in the offseason is never a bad thing. When you remind customers of your brand through a giveaway, you increase the chances that they will visit your store and purchase products related to your giveaway. Helping customers prepare for an upcoming peak season can solidify your sales in the offseason.
The other way giveaways work to your advantage is that it helps to clear out your inventory. This reduces your fees and helps you make room for your forecasted inventory.
Product seasonality does not need to result in stagnant sales and excessive inventory. While highs and lows are common in the retail space, analyzing your available data, properly forecasting your demand, and adjusting your marketing efforts accordingly will help you to stay competitive and bolster your sales all year round.