Demand generation – Dutch Uncles

Demand Forecasting 101: Meaning, Types and Methods

Tanisha Achrekar — Thu, 29 Apr 2021 05:35:05 +0000

In grocery stores, you might have observed that some products are available in more quantity than others. The store owner would have more of some biscuit packets and barely a few or none of the others. Even from the manufacturer’s end, some products are manufactured more than others. Why would manufacturers, suppliers, or store owners keep/produce more stock of some products and less of others? The reason behind their actions is simply an estimated demand. The grocery store owner observes his usual sales and estimates which products are going to be sold more and which less. Then according to the estimated demand, he places the order to his supplier. The grocery owner here, without even realizing, conducted the process of demand forecasting.

Defining and understanding demand forecasting

Demand forecasting is a technique of estimating the demand of consumers for a product or service in future. Historic sales along with other information are taken into consideration while forecasting the demand for a product or service. A demand forecasting process gives a business the valuable information needed in order to understand the current consumers and potential consumers. This analysis helps the business to create a pricing strategy, marketing analysis, production along with other critical business decisions.

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If your business is new, active demand forecasting seems the perfect fit for you.

Types of demand forecasting

Depending on your business, there are several ways to conduct demand forecasting. Every forecasting will give you a different result. If resources and time permit, using multiple forecasting helps a lot to understand the consumer demand better. As it will help you in understanding the difference in predictions and the reason behind it.

Active demand forecasting

If your business is new, active demand forecasting seems the perfect fit for you. Active forecasting is where demand is derived based on external factors. This is because since the business is new, there is barely some or no internal information available to analyze. Instead during active forecasting, the focus lies on marketing campaigns, expansion plans, and marketing research.

Passive demand forecasting

Passive demand forecasting is the smoothest and easiest way of forecasting for your business. This is because the sales from the past are used to predict the future sales of the product/service. Also, there are no statistical methods or economic trends that are needed to be studied for this type. It is completely data-driven. The key here is to have tangible and reliable data that you can use. The more reliable your data is the more accurate your demand estimation will be. However, during passive forecasting, the underlying assumption is that your sales will remain the same as last year approximately. Hence, it is a great model for a business that is doing good sales and plans to continue that. This forecasting is more focused on maintaining the existing stability rather than growth.

Internal demand forecasting

Internal demand forecasting helps in understanding that even though the consumers demand increases, is the business capable enough to handle it? Does it have enough resources to meet those demands? Internal forecasting helps in understanding how the operations are going and their existing capability. It helps in understanding what is working for the business and what isn’t. One of the parameters taken into consideration during internal estimation of demand is profit margins, finances of the business, working capital, and supply chain operations. The reason why finances form the basis of this forecasting is to understand does the business have enough funds and resources to meet consumer demand.

External macro forecasting

What is happening in the industry, the market or the overall economy is taken into consideration during the external macro forecasting. It focuses on the external massive factors. The forecasting helps in understanding how the macro external factors are going to impact the consumer demand of your business. A simple example is how the COVID-19 pandemic, an external factor affected the demand of several businesses. Taking external market forces into consideration is essential as even though your business may be ready to expand, sometimes the time just may not be right. Also, these external parameters usually do have a direct impact on raw materials availability and other factors in the supply chain funnel too.

Short term analysis

Short term demand forecasting is basically to understand the demand for your goods or services in the next three to twelve months. Knowing the short term demand helps in managing the supply chain on an almost real-time basis. Also, the data here is adjusted according to the existing sales data. Short term demand estimation helps especially for those products whose line-up keeps changing. For most organisations, the short term demand does not suffice and long term demand forecasting is needed to be conducted.

Long term analysis

Long term analysis will help in estimating the demand for your product or service in the long run. Usually, the period here is anywhere between one to five years. The forecasting here helps in modelling the growth of your business. Sales data and market research being the parameters, long term forecasts may not always go exactly as predicted. This is because there may be several external factors that may impact one or both the variables. However, still, long term demand forecasting is needed as it acts as a roadmap of where your business wants to be in the long haul. The demand that is forecasted in the long haul impacts the sales, supply, funding and marketing decisions. For a growing business, it is important to plan for the future and be prepared accordingly.

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Long term demand forecasting is needed as it acts as a roadmap of where your business wants to be in the long haul.

The different methods of demand forecasting

There are several ways to derive the estimated demand for your product/service. The popular five are listed below –

Market research

The data that is collected via consumer surveys form the basis of market research demand forecasting. It is quite insightful but time-consuming well as surveys are needed to be created and distributed. However, the information you receive here is directly from your consumer or potential consumer and hence, it is of great importance. Some companies conduct market research on a continual basis while others prefer to do it only during research. It gives you a clear picture of your consumer and based on their demographics, marketing strategies can also be enhanced along with understanding their demand.

Delphi technique

The Delphi technique leverages the opinions of experts on your demand forecasting. In this method, you engage with experts outside of your organisation to understand your market forecast better and get their views on it. Usually, a questionnaire is sent to a group of demand forecasting experts. The responses of the experts are shared anonymously via a panel discussion. The process continues and answers are shared by experts in one round after the other. The answers shared in the previous panels impact the answers of the next round. This continues till the entire group of experts have come to a mutual conclusion.

The method though may sound quite extensive, it helps in understanding the views of experts on your business and its demand. Also, the reason behind the anonymity during the questionnaire helps in understanding the true views of the panels of experts. As the rounds proceed the group builds on each other’s expertise and opinions till they all arrive on the same page.

Trend projection

Trend projection is a simple and hassle-free way of demand forecasting. It basically used the trends of the past to understand and estimate the trends of the future. The data of the past sales of your product or service will be used to estimate the demand for your product/service in the future. However, it is necessary to take into account that if your sales were drastically down or up in a given period, that situation is unlikely to repat. For example, if you sell sanitizers and your sales were soaring high at the beginning of the pandemic, those high numbers are unlikely to stay the same forever. It is essential to observe and adjust any unusual factors that may have impacted your sales in the past.

Sales force composite

This is where the sales team takes the lead. In sales force composite demand forecasting, the data received from the sales team is used to understand and estimate consumer demand. This is because the sales team is usually closely connected to the consumers and may know how the consumers are feeling about your product/service. They take feedback and get requests every day from the customers and hence, they might know what is working and what is not. The sales division conducts meetings to collect the data from their team and develop a forecast accordingly.

Econometric

The econometric method as the word suggests is when you take economic factors into consideration while forecasting demand. Along with the external macro factors, even internal sales data is taken into account for predicting the demand. This method involves a lot of numbers as a mathematical formula is used for estimating the consumer demand in future. It reflects how the internal and external factors impact each other while estimating demand.

Demand forecasting is a great tool for your business as knowing the probable demand in future will help you in taking the right business decisions in the present. It is like a road map for your business. The mere demand for your product impacts its sales which impacts your profit which in turn impacts the growth and sustainability of your business.

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First Step to Generate Leads: Key Perspectives You Can’t Miss

Avijit Dutta — Sat, 16 Jan 2021 09:19:54 +0000

The Demand Generation Context

Lead generation is a process, a set of activities required to fill the top of a marketing funnel. It is the process through which a ‘suspect’ is converted into a ‘prospect’. By definition, a suspect is a person or an entity who is outside the sales funnel but who essentially emits some signals (such as visiting your website, downloading content, sharing email and phone number, etc.) that (s)he might conform to our target audience. However, we have to validate our assumption and qualify a suspect into a ‘prospect’. Before we get to the challenges to generate leads there are three more questions, we need to clarify in order to establish the market segment your product can be categorised. Those are:

What is your average revenue per account per annum (ARPA)?
How many accounts do you need to create $100Mn in ARR?
Who is your target customer? Is it a retail user, an SMB or an Enterprise?

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Lead generation is a process, a set of activities required to fill the top of a marketing funnel. It is the process through which a ‘suspect’ is converted into a ‘prospect’.

**Christoph Janz of Point Nine Capital described 8 following types of products:**

1. A microbe: charging $1 a year per account to 100 Mn users e.g., WhatsApp
2. A fly: charging $10 a year per account to 10 Mn users, e.g., Yelp, Brainly
3. A mouse: charging $100 a year per account to 1 Mn users, e.g., Evernote, Mailchimp
4. A rabbit: charging $1K a year per account to 100K users, e.g., Shopify, Kajabi
5. A deer: charging $10K a year per account to 10K users, e.g.,Hubspot, Atlassian
6. An elephant: charging $100K a year per account, e.g., Salesforce, Demandware
7. A brontosaurus: charging $1M a year per account, e.g., Veeva, Workday, and
8. A whale: charging $100M a year per account, e.g., Palantir

Most SaaS companies selling to SMBs start as a rabbit and try to become a deer over time. A rabbit requires an automated no-touch sales process whereas a deer would need an inside sales organisation. For those who do not know the difference, an inside sales organisation has Sales Reps (SDRs) who sell to inbound leads remotely over call and a demo over the internet. A low-touch or no-touch sales process avoids using a human to close sales. The reason is that the LTV coming from the low-ticket size does not permit the availing cost of a sales team. The elephants, brontosaurus and the whale fall under the domain of hardcore enterprise sales with a longer sales cycle and requirement of face-to-face dedicated sales executives (ABS, Account-Based Sales).

Which Segment Does Your Product Appeal To?

From the above discussion three different market segments emerge:

1. B2C: Individual users, low ticket, high volume: microbe, fly, mouse
2. SMB: Small & medium business owners, moderate ticket size, medium volume: rabbit and deer
3. Enterprise: Large enterprises, high ticket size, low volume: elephant, brontosaurus and whales

With this context, let us attempt to understand the challenges to generate leads as these three different segments of users carry different procurement mindsets since they follow different decision-making processes.

Usually, all these companies would use a combination of the following channels to generate leads. Let’s delve deeper into these channels for lead generation before discussing common challenges faced in respective channels

Common Channels To Generate Leads

Content Marketing

People connect with stories. And where do we look for stories? The answer is obvious, the internet, especially social media. People on an average check their smartphone about 150 times a day. These are opportunities to grab attention. And nothing works more than a well-crafted story i.e., content in the form of a video, gif, meme, blog, vlog etc. Content marketing is one of the key pillars of marketing today.

Influencer Marketing (paid)

You have a group of followers (tiny or big) in the real world. However, you can’t broadcast a message to these people instantly if you so desire. But the social networks on the internet have made it possible for anybody to communicate to his or her captive audience on the network instantly. Power to people, you might think. Therefore, every person in a network is a micro-influencer. The celebrities such as a film star, a singer, or a sports star might have influence over millions whereas a local influencer might have influence over a few thousands. The difference is in degree not in quality.

This phenomenon of networking clubbed with our innate human bias for a recommendation from a known, likable face have created a new form of marketing, influencer marketing. Today you can pay selected (micro-)influencers to endorse your product on his or her social network and generate (micro-)visibility which in turn generate leads for your product.

Search Engine Optimisation (organic)

When you publish your website, search engines such as Google sends a crawler program to your website. The crawler picks up keywords from your webpages and indexes those in the google search algorithm. Based on several qualifying criteria that google changes from time to time a rank is generated for your website for certain keywords. This entire ranking process is unpaid or organic because google doesn’t take money from you to do this work. It takes some time before you can expect good results from such SEO efforts. However, a higher organic ranking on certain keywords that are relevant for you increases visibility organically and helps your brand establish its authority. SEO should be there in the long-term marketing strategy of your product and brand.

Search Engine Marketing (Paid)

This is the bidding marketplace where you bid an amount for certain keywords in google search. You get instant results in higher ranks within the paid-search listing hence get a share of attention from your target audience. Search engines are a two-sided network where on one side the ‘free’ users share their ‘intent’ with google in terms of the search keywords and google indexes those search terms and sells those to the willing bidders on the other side of the network and make money in the process.

Email Marketing

Email marketing, if done well can be called one of the forever green pastures for your brand. In this you build a well curated list of emails collected from the internet traffic you get (either organically or through paid marketing) on your landing page in exchange of offering some value to them (e.g., an eBook, information, access to your basic product etc). These are usually people who self-select to opt-in your list of email followers therefore can be a very relevant, effective and sticky audience. Once your list grows to a significant number you may plan sending them occasional updates of your activities along with product promotions.

Social Media Marketing

Social media marketing helps you to build a funnel in the selected social networks such as Facebook, Instagram, twitter etc. It has both organic and paid options just as in search engine platforms. These efforts are a must for building a recall of your brand and continuously engaging with your target audience. It can also help you build your own community of earnest followers through groups and pages. You may also use a technique called retargeting to follow along a prospect who showed some interest in your content across the social media.

Affiliate Marketing

This is a performance driven reward system that rewards the source (read affiliate marketer) for bridging a lead into seller’s funnel. It can also be linked to final sales rather than just providing a lead. There are affiliate networks that consist of influencers, bloggers, large media sites that help capture a lead and redirect them to the seller’s website.

Structures Of The Sales Organizations

There can be another lens to view these channels and the lead these channels generate.

Based on the effort to generate the leads, say we create a 2×2 matrix. The x-axis is divided into inbound and outbound. Inbound means the prospects discover the product online and call/reach the company sales executive, whereas outbound means the company sales executives call the prospects/leads generated through other marketing campaigns. On the Y-axis we plot the type of leads: organic, if the leads come through non-paid sources such as word-of-mouth, organic search (SEO) etc. and paid, if the leads come through paid marketing sources such as google paid search (SEM), influencer marketing (paid) etc.

No-touch: B2C

In this segment, the LTV is too low to allow for a large spend on customer acquisition. We can’t even afford a human closing a sale. Therefore, automation is the only way. Moreover, the expectation is to generate leads which are organic rather than paid over a period of time making the low lifetime value justified in the business model.

For example, nobody from Facebook came and sold you an account, you got sold yourself. Though you might feel you are not ‘paying’ any money to them. But the fact is you are paying in another currency, your ‘attention’. That’s what Facebook sells on the other side of the network, to the advertisers who want to catch your attention.

Google follows a similar business model. When you sign up for Gmail you don’t pay in the basic plan but when you use google search you share your ‘intent’ with google and google sells your ‘intent’ (read search terms, keywords) to millions of willing bidders on the other side of the ‘screen’. That’s how they make money.

It’s the continued ‘presence’ of users like yourself on the network that makes these two-sided platforms ‘valuable’. Therefore, they will go to any extent to get your ‘attention’ and keep you ‘hooked’ to their screen, if possible, forever.

Inside-sales: Medium ticket B2C & SMB

In some sectors, the sales ticket size is usually moderate, not too small nor too large. In such a case we can afford to spend some budget on what we call an Inside Sales organisation. In such a case online marketing is considered to generate leads, however, there will be a group of sales executives who would call these leads to close the sales over the phone or the internet.

Imagine an insurance agent selling your car insurance. She is going to call you before your renewal date and try to sell you an insurance product. You will never meet her in person. This kind of a sales effort is a low-touch sale more formally called an Inside Sales. It is called ‘Inside’ because the sale executives would never go outside the office to sell the product. The entire sale happens remotely.

The cost of customer acquisition here is higher than that of no-touch sales but this higher cost is justified by the higher ticket size and higher margin of the product, say, the insurance premium.

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In this article we have set the context of digital marketing with respect to the nature of the business, and pricing of products.

Enterprise Sales: Enterprise

Finally, we come to the large ticket contracts which are sold to large enterprises. These are large annual contracts for build-operate models. Often the deal size goes into tens of millions of dollars. Of Course, the time to close such deals are longer, there are many people involved in such a purchase, therefore, such sales require a lot of human contacts, face-to-face meetings, requirement gathering, proposals, counter proposals etc.

Think of companies such as TCS, Wipro’s of the world in the software domain, GE, Bosch’s of the world in the manufacturing domain.

The customer acquisition cost in such a sales structure is very high and the high-ticket sales justify those. Leads are generated mainly through outbound activities, be it paid or organic using a strategy called Account Based Marketing (ABM).

In this article we have set the context of digital marketing with respect to the nature of the business, and pricing of products. We have logically deduced three different segments (B2C, SMB & Enterprise) in the market for such products. We have also explored their uniqueness and deliberated on the kind of sales strategy appropriate for each segment. This article sets the context well for the next topic we want to cover next. We will discuss the top 9 lead generation challenges and possible solutions in the upcoming article, so stay tuned.

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