This is a guest post from the Kapoq team.
One of the biggest challenges in selling on Amazon is forecasting. If you forecast too little, you’ll run out of stock, which could impact your advertising and sales for months to come. Going out of stock impacts your listing health, visibility on Amazon, and could even push would-be customers toward a competitor.
On the other hand, if you forecast too much, you could pay overstock fees on Amazon, costing you tons in unexpected fees. You might end up with old, hard-to-sell stock that ties up cash, and costs storage to boot.
So what makes forecasting so difficult on Amazon? And how do you find the balance of forecasting accurately but conservatively? We’re diving into all of the details.
Why Forecasting is So Difficult on Amazon
1) Timing and Accuracy
Part of the challenge in forecasting in Amazon is both the timing and accuracy of your forecast. We typically recommend forecasting 6 to 12 months out so you can predict your ad budgets and inventory needs.
However, you should also be re-forecasting every month. During busier times, such as Prime Day or Cyber Weekend, you could re-forecast as often as every week. The more you forecast, the more accurate your forecast becomes. For example, if you forecast for June in January, if you forecast again in February, your June forecast will be that much more accurate!
We recommend shooting for a 70% accuracy in your forecasting. The longer you practice forecasting, the more data you build up, and the better chance you have for greater accuracy of up to 95%!
2) Demand Transfer
Another key aspect that makes forecasting so difficult on Amazon is the concept of demand transfer. We’ve written in-depth about demand transfer before, but it’s essentially adjusting what consumers want to match what you have in stock.
This is difficult on Amazon, because if your best-selling color is out of stock, Amazon will still push that color as the cover image on the search results page (making it more difficult for the demand to transfer when the customer clicks on your listing).
It’s difficult to change consumer behavior to the colors you have in stock when they can so easily see the color they want with your competitors, which makes it even more important to stay in stock and replenish quickly.
3) Trend Forecasts vs. Strategic Forecasts
Forecasting can also be a challenge because you need to find a balance between trend forecasts and strategic forecasts. These both have a place in your business, but you need to understand how to use each of them to make the most of them together.
In short, a trend forecast looks back at what has happened in the past to predict what will happen in the future, while a strategic forecast takes into account changes you might make that would affect sales, like what would happen if your Average Selling Price changed.
Using these in tandem can help you forecast accurately, but it’s not an exact science by any means.
4) Amazon’s Inbounding Process
Lastly, Amazon’s inbounding process can impact your ability to accurately forecast demand. You need to know if you’re going to sell out of something with enough lead time to replenish your SKUs in Amazon’s network.
You need to consider the time it takes Amazon to actually receive your units, which can take weeks of waiting for Amazon to actually process your shipment into their warehouse.
Another issue is that your items need to be prepped and labeled properly before you ship them off to Amazon. Amazon has very specific needs for how items need to arrive, and not being compliant can result in complications in your inventory process. If you send items in that don’t meet their standards, you’ll face either inventory disposal or return, re-prep, and another inbound process.
All of those steps combined have fees and costs associated with them, on top of the wasted time it takes before your items are available for sale.
The Solution
There’s a two-pronged approach to nailing your amazon forecasting — you need both accurate forecasting and a reliable inbound service.
Inventory Forecasting
In Kapoq, you can forecast by SKU or by ASIN, and then estimate sales over the upcoming 12 months for those individual items. This computes a run rate of how many units you can expect to sell, taking into account your historical data, including lost sales and return adjustments.
You can also mark time periods where you were out of stock using the Event Stakes in Kapoq, making it easy for you to adjust your forecast in the future without skewing your data.
Our forecasting tool works based on the inputs you provide. When you enter data points like your lead time, case pack quantities, and reorder frequency, Kapoq automatically tells you when to restock each SKU based on those inputs.
Unit demand forecasting allows you to project months or years into the future for forecasting further out. Within Kapoq, you can view the sales curve by parent ASIN, allowing you to forecast on a granular level. This also allows you to determine your seasonality; Kapoq will look over all possible sales curves and assign the one that has the highest correlation with your chosen SKU.
Inbound Service
Working with a reliable Amazon inbound service is paramount — going out of stock can impact your sales for months to come.
ZonPrep’s inbound service does just that. They consolidate every pallet into full-truckloads and get your inventory scanned in the next day, so you can save on Amazon placement fees. You can save up to 75% on shipping costs, all while ensuring you reach compliance.
A reliable Amazon inbound strategy means sellers can be faster and flexible when it comes to their inventory. Sellers get one convenient point of contact, inventory arrives at Amazon fully compliant, and listings get replenished faster and more conveniently.
Conclusion
Forecasting on Amazon doesn’t have to be difficult — in fact, with the right technology and partners, you can easily manage your demand to avoid fees and ensure you’re always in compliance.
Using Kapoq and ZonPrep together can lead to more accurate forecasts and fewer fees over time! Your listing health and visibility will improve, and you’ll be able to grow your business sustainably!