How to use inventory forecasting for your business

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Inventory forecasting is the process of predicting how much stock a company needs to keep up with customer demand. These predictions are informed by market research, sales data, and other variables that cause inventory levels to fluctuate.


In today’s uncertain times, companies can’t afford to leave inventory planning to guesswork. Accordingly, accurate inventory forecasts are essential to improve cash flow, satisfy customers, and stay competitive.


This article covers what you need to know about inventory forecasting to optimize your supply chain and keep customers satisfied.

What is inventory forecasting?

Inventory forecasting refers to methods an organization uses to project how much inventory they need to fulfill future sales. This is a valuable process for product-based businesses of all sizes, including retailers, wholesalers, and distributors.


When it comes to inventory management, one of the biggest challenges is striking the right balance between healthy cash flow and optimal stock levels. That’s where inventory forecasting comes in to help supply chain managers predict how much stock they need to meet consumer demands without overstocking.

4 benefits of inventory forecasting in uncertain times

As much as businesses would love a crystal ball to see exactly how much inventory they should hang onto, that’s not possible in today’s turbulent times. However, implementing an inventory forecasting plan can give you some key advantages.

1. Reduced inventory carrying costs

Keeping excessive safety stock increases storage costs, not to mention the risk of inventory spoiling or becoming obsolete. But data-driven inventory forecasting methods let you safely gauge the optimal amount of stock to keep. These insights keep spending under control and free up space in your facility.

2. Fewer stockouts

Lost sales due to stockouts or backorders are detrimental to any company’s bottom line. Inventory forecasting mitigates that risk by considering sales history and market research, so teams don’t get blindsided by a demand surge.


For example, aligning with the marketing team about a campaign for a new product ensures you can make more accurate inventory forecasts and stock up accordingly.

4. Better business insights

Understanding how much inventory you’ll need for a specific period doesn’t just benefit buyers; it keeps reporting as accurate as possible and ensures fluctuations don’t throw budgets out of whack.

5. Better relationships with suppliers and manufacturers

Strong relationships with suppliers hinge on mutual trust. When a company accurately predicts when to place purchase orders for each SKU, the supplier or manufacturer can give more accurate lead times. This proactive approach fosters trust and saves money that would otherwise be spent on expedited production or shipping.


With the benefits of forecasting clear, here are five metrics you can use to estimate the inventory your business needs during a given period.

5 inputs you need to forecast inventory

Let’s look at the key variables every organization needs to know before they can forecast inventory.

1. Reorder point

reorder point is a specific stock level that triggers replenishment. Calculating a reorder point ensures you don’t dip below the minimum inventory needed to fulfill orders.


Here’s the reorder point formula:


Reorder Point = (Average Daily Usage x Average Lead Time in Days) + Safety Stock 

2. Safety stock

Safety stock is extra inventory held to reduce the risk of stockouts or shortages. The formula for safety stock is the difference between your maximum daily usage and lead time, and your average daily usage and lead time:


(Max. Daily Usage x Maximum Lead Time) – (Average Daily Usage x Average Lead Time)

3. Maximum stock level

This metric indicates the most units you can store for any given SKU. Understanding maximum stock levels ensures you don’t run out of space for any inventory.

4. Lead-time

This is the total time between when you place an order for inventory and when the manufacturer or distributor delivers it.

5. Trends

A trend is any change in demand over a specific period. For example, a swimwear brand sees an uptick in sales every May, so they know to ramp up their inventory accordingly.


Not all trends are obvious, though. As you collect more customer data, you’ll notice purchasing habits based on location, age, and market trends.


After selecting the best inputs for your business, choose a forecasting method that will effectively show how your business sees its inventory needs.

4 inventory forecasting methods

There are four types of inventory forecasting techniques to choose from, depending on your goals and how much data you have access to. You can mix and match these methods as you see fit.

1. Quantitative Forecasting

With this method, a forecaster uses numerical data to create a model that predicts future demand. The more historical data you have, the more accurate the model will be.

3. Graphical Forecasting

This method incorporates the same data as quantitative forecasting, except it conveys it in graphical form. The visual representation of data often makes it easier to spot trends and make more accurate predictions.

4. Trend Forecasting

This method considers data like market growth and past sales to project future sales trends for a specific product. Once a trend is identified, inventory managers can adjust their strategy accordingly.

5. Qualitative Forecasting

If your organization lacks historical data, gathering qualitative insights from focus groups, surveys, and market research can lay the foundation for accurate models.


After doing all the work to try and predict the future, here’s how you can get the most out of it by applying your new insights to your business.

3 ways to apply inventory forecasting

Let’s explore a few applications for inventory forecasting

1. Forecasting for more efficient operations

Leaving inventory management to guesswork is inefficient and costly. Implementing an inventory forecasting plan enables you to make more informed decisions and carry just enough inventory, with techniques like  just-in-time manufacturing, without overspending.

2. Forecasting for new products

Demand forecasting for a new product is difficult because there isn’t historical data to rely on. However, analysts can leverage data from similar products as well as qualitative data to make evidence-based predictions.


Forecasting models for new products should account for any marketing initiatives or seasonal trends influencing purchasing habits.

3. Forecasting for seasonal products

If a company has a seasonal product, analysts use a combination of qualitative data (weather, market trends) and quantitative data (past demand, historical sales data) to make their demand planning as accurate as possible.

Inventory forecasting tools

As your business becomes more complex, so does inventory forecasting. Here are a few common tools you can use during the forecasting process.

1. Spreadsheets

If your business has a limited product catalog, a simple spreadsheet can run the basic calculations you need to forecast inventory.

2. Third-party logistics provider

If you outsource your order fulfillment to a third-party logistics (3PL) company, they may have the capabilities to create sophisticated models internally.

4. Inventory management software

Whether you sell five or 5,000 products, inventory management software is a valuable tool to gain efficiencies in your supply chain.


Enterprise also automates inventory tasks so you can minimize surplus and reduce the risk of human errors that slow your momentum.

Best practices for inventory forecasting

Here are three tips to keep in mind to get the most value out of inventory forecasting:

Get the whole team involved

Inventory forecasting is a team sport. Before making any bold predictions, seek input from stakeholders in every department, including marketing, finance, and product development. The more information you have, the more accurate your forecasts will be.

Invest in real-time inventory tracking

Spreadsheets are cheap, but there’s a big tradeoff: since you have to update them manually, they can only give a static snapshot of inventory levels. On the other hand, inventory management software automates this process so you can spend less time tracking SKUs and more time making key decisions.

Take notes to inform future forecasts

Sometimes data alone isn’t enough to make accurate predictions. You need qualitative notes to contextualize inventory trends.

For example, if a social media post mentioning your brand went viral and caused a spike in sales, you wouldn’t incorporate that fluke event into next year’s projection. However, if you notice a demand surge around Father’s Day, you can expect a similar trend next year.

Final thoughts

Inventory forecasting isn’t an exact science. But at the end of the day, a strong estimate is better than no estimate at all, especially when supply chains are vulnerable.


Think of it like a weather forecast: millions of people check the weather app on their smartphones every morning so they know whether to pack an umbrella or an extra layer. Even if the data isn’t 100% accurate, you have a good sense of what to expect that day.


This article originally appeared on The QuickBooks Resource Center and was syndicated by

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25 businesses you can start from home


It really is possible to start a home business and make money doing it. There are dozens of small businesses that can fit your schedule, your passions and your income needs.

Here are 25 ideas for small business from home to give you a little inspiration as you plan. These businesses fit into four categories: Personal services, business services, household services and e-commerce opportunities. (You may also find this guide on how to start a business helpful as you begin this journey.)


Jovanmandic / istockphoto


Personal service businesses are often great for a home-based business because you probably already have many of the tools and supplies you’ll need. Most of the below businesses require a working vehicle, a valid driver’s license, a personal computer and an email address. Some also require specialized training or licenses.


This category covers jobs like personal trainer, yoga instructor or Zumba instructor. If you have enough room in your home or your yard, it’s easy to accommodate clients for training sessions or classes. For information regarding personal trainer certification, check out the American College of Sports Medicine. For information regarding yoga instructor certification, check out the Yoga Alliance. And for information regarding Zumba® instructor certification, check out the Zumba website.


If you have specialized knowledge of any STEM subject, you’ll more than likely be in high demand as a tutor. Depending on how you performed on standardized tests (i.e. SAT, ACT, GRE) you could offer your services to future test takers as well. And if writing is your expertise, tutoring students on essay writing or research papers is an in-demand service.


If you love dogs, offering to help out pet owners who are stuck in an office all day or looking to take a vacation is a great option. Rover is the perfect site to advertise your services. Piggyback off of their search engine optimization ranking and advertising budgets, by listing your pet sitting services there. You can also sign up with Wag! which is a little bit like Uber for your dog.

There’s also a professional organization, the National Association of Professional Pet Sitters that offers great resources like infographics for promoting your services and resource links for their members to get your home-based business up and running.


You can help people reply to emails, set appointments or keep track of expenses. With access to the cloud, it’s easier than ever to give someone a digital assist. There are a variety of sites that allow you to sign up for virtual assistant jobs, including Also, be sure to take advantage of any of your social networks and professional networks when looking for clients. While there are many sites out there that can match you as a VA to a client, if you’re looking to build your own home business, you’re going to need your own client network.


In general, the elements of planning a party can all be done from home with a good Internet connection and some imagination. You’ll need a few early clients and some good word-of-mouth to get started. Also, be sure that you clearly define the type of parties you’re willing to plan. Kids birthdays, milestone celebrations (i.e. anniversaries or retirement) and once-in-a-lifetime events (i.e. bridal showers or bachelorette parties) are a few categories to consider. Also be sure to clearly define exactly what your services entail. Will you plan the party and then hand over the plan to your client? Or will you do everything from top to bottom, plan, purchase decorations, organize the catering, set-up and tear down?

This article from WikiHow gives a great breakdown of the steps to take to start your own party planning business.


While everyone needs one to find a job, résumés are still a mystery to many job seekers. Try marketing your services to a particular niche (i.e., engineers, manufacturing salespeople). Also, make sure you’re up-to-date on how applicant tracking systems are currently parsing résumés.

No matter how well-written it is, if it can’t get past the résumés bots it’ll never get anyone a job.


Business services can range from accounting to bookkeeping to transcription services, and are often one of the best home-based business options. (Check out our tax form guide for small businesses: 1099 vs W-2.)


Balancing the books and keeping track of payroll and billing is essential to any company. If you have expertise in this area or, even better, are a CPA, there are many small and medium-sized business that will find your skills useful.


Maybe you’ve noticed the trend – every time you go to a website that offers a product or service, inevitably a little chat box pops up in the corner and offers to engage with you. If you know anything about how to make chatbots or are willing to learn, this could be a quick source of income done from the comfort of your couch. Check out this article for more information.


Seems strange to say, but this oldie but a goodie is still in vogue. Even with DIY platforms like Squarespace, some companies still want something with a more personal touch or are looking for a higher level of functionality. And applications continue to be a go-to business tool that many organizations are still trying to develop.


Hand in hand with website development, graphic design is still an in-demand field, and a perfect home-based business. Stay up-to-date on the latest in graphic design such as newer presentation tools like Keynote and Prezi to stay relevant.


This category could also include things like business plan writer and business coach. With the number of small businesses launching daily, many entrepreneurs are looking for expertise. This is a great choice if you’ve recently left a job in the business field and are looking for ways to apply your experience.


This umbrella term covers a bunch of different areas, including:

  • Metadata Specialist
  • Social Media Consultant
  • Content Writer/Editor

You can also simply serve as a consultant, someone to help for big campaigns or at critical times of the year for organizations.


While this job might keep you very busy from January to April, the fact is most businesses have questions and need tax advice year round. In fact, many small business advisers recommend that small businesses have a year-round tax advisor. Meeting once a quarter with small business entrepreneurs is recommended, to make sure all tax laws are being followed and any steps for minimizing taxes are also in place. After taxes are followed, tax advisors can help with organizing records in the case of an audit and prepping files for the next fiscal year. (If you’re thinking about starting a business, you’ll want to know what you can deduct. Check out our guide to tax deductions.)


Many different industries use transcription (medical and legal being the most popular). It will typically require you to have a headset or to download some software, but the costs should be nominal. There is also testing that you may need to pass before you can be approved for work. If you have background in medical or legal industries, you’ll probably be able to secure a better rate or at the very least have a more steady stream of work. Check out this article for some details on available transcription service companies.


People love where they live, but often don’t have the time, energy or expertise to make common repairs or even to clean. Some of these businesses will require you to visit other people’s homes, but you can run the operations right from your dining room table.


Everyone loves the beauty of a clean home, but few of us actually like getting it that way. If you don’t mind dusting or cleaning toilets, this is a great opportunity to make some extra money. It’s especially great for stay-at-home parents with school-age children, as most people will want their homes cleaned during the day when they’re at work.

You can use Craiglist or Facebook to advertise your cleaning services; search engine marketing is also a good place to start. Also take a look at your social networks – the carpool lane or your kid’s soccer sideline might be a great place to float the idea of a cleaning service to busy moms and dads who are already harried with multiple responsibilities.


Fluff and fold is popular for a reason, but the local laundromat can get expensive. Offering them an alternative, and maybe one that’s right next door will bring value to your services.


You could sign up through an app like Instacart, or just offer your services ad hoc. Regardless, grocery shopping is one of the chores people like the least and are often very grateful to mark it off their to-do list. You might be able to promote your business in local grocery stores or markets, you’ll just need to ask for the store’s permission. Also, if you have a school-age child you can look to advertise in the school’s newsletter or talk to other moms and dads. Facebook is a good option, especially if you’re part of any groups that are focused on working professionals. Just be sure to abide by the rules of the group or clear your post with the group administrator first.


If you love to cook, this might be a no-brainer. Bonus points if you are well-versed in gluten-free, vegetarian/vegan or allergy-free cooking techniques, as these are in high demand at the moment. There are licenses and permits you’ll need to make this a full-fledged business. You may also need to get certification from your local health department. An idea for promotion is to set-up a YouTube channel or video subscription service that allows you to demonstrate certain recipes. This will give you a place to refer people who may be interested in what you’re cooking and allow you to gain more exposure to potential clients.


Are you known for your amazing holiday tablescapes? What about outstanding light displays that delight the kids, but annoy your neighbors? More people are outsourcing the work of holiday decorating due to its time-consuming nature, sometimes less than favorable conditions, and the sheer amount of work. However, if this is something you excel at, it could be a great way to earn extra income, especially at tough times during the year – the holidays. Even if Christmas lights aren’t your jam, interior decorators offer a valuable service to the designer-challenged.


While it may seem that this home-based business opportunity would cost a lot to start, that’s not necessarily true. You don’t have to have your own lawn mower – or a truck to haul it – but can instead use your client’s. Also, gardening services are especially valuable for homeowners who love the look of well-maintained landscaping, but can’t do it themselves.


Are you a licensed electrician or plumber? What about a woodworker or tile layer? Whatever your home repair expertise is, there’s a good chance folks around you could use it. Bicycle and car repair fall into this category as well.


Moving away from offering folks a service, let’s focus on offering a product. Here are some online business ideas that fall into the realm of e-commerce.


Ebay is a little over 20 years old, but it hasn’t lost any of its momentum. The best resource to learn more about selling on eBay is eBay itself. Check out their extensive seller’s guide for more information.

Some sellers swear by flipping items on eBay. This means you purchase an item for cheap and then sell it for more money on the site. This typically takes a little time and a lot of research, but it can be a viable money-making option, especially if you love garage sales and thrift stores.


If you’re constantly taking pictures or have a passion for photography, you could turn your snapshots into cash. Getty Images and Flickr offer services for amateur photogs to sell their pictures. You will need a high-end digital camera though – unfortunately, smartphone cameras won’t work. You could also look at setting up a small studio for portraits or offer your services for parties and special events.


There are big names in this field: Avon, Tupperware, Pampered Chef, Mary Kay. If you have an interest in any of these products or just like to host parties, consider becoming a rep for one of these companies. Also, with Facebook and Youtube Live you can host virtual parties every day of the week from your own living room.


If you make any type of personal care product, it could turn into a good side business. You’ll want to be sure you take special care to track all the ingredients you use and how they are sourced. This is especially important if you want to sell at any craft fairs or festivals. Many times the application will include a section regarding how the products are made/sourced. You can also take these items and place them on Etsy or eBay, and create a sideline business by crafting specialty gift baskets or collections.

Making extra income or launching a home-based business will require planning and forethought, but it can also lead to wonderful opportunities for you and your family. Explore a passion or pick up a new skill and reap the benefits of your own home business.

(When you’re ready to start your own business, you’ll need to get paid, so check out this free invoice template.)

This article originally appeared in the Quickbooks Resource Center and was syndicated by


Featured Image Credit: StockRocket / istockphoto.