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How to Forecast a New Product

Jan 8

The many variables and unknown factors involved in forecasting sales and inventory management make it a challenging task. Since you have no past performance on which to base your forecasts when forecasting sales of new products, the job becomes all the more difficult.

A sales forecast is an additional tool you need to measure your sales, marketing, and operations. Even though it's difficult, creating sales forecasts is essential for planning the resources you'll need. These resources include inventory, staff, and cash flow, to meet actual demand.

Forecast based on existing product sales

It is common practice to forecast demand for a new product using the sales volumes of existing products. This method is particularly suited to variations of existing ones, such as in new colors, sizes, or types.

This means that you (or someone else) will continue to sell a very similar product to your existing ones. If marketing or distribution aren't going to change much, this is especially true. Launching a completely new product makes forecasting sales more complex. In this case, you will have to do additional market research to discover the size of the potential market. If you face difficulty forecasting sales of your products, you can use inventory management software like Inventooly.  

Research the market using affordable methods

You can use affordable methods to help you project the sales of your new product, similar to sophisticated market research techniques used by large companies.

Get in touch with your sales team

Sales representatives must understand your market, including the activities of your competitors. Your customer service team will also discover a new product's potential. They can help you estimate how many units you can move in the first month, as well as what the ramp-up rate will be. They will also feel more engaged since participation will lead to a successful launch.

Seek out additional sources of intelligence

To get their viewpoint on how the product will do in its first year, talk to trusted customers, suppliers, and sales partners such as dealers and distributors. It would be good to say to the other person: "We are thinking of doing something along these lines. What do you think?" See the reaction and review of the other person and then act accordingly. 

Primary research should be considered.

You should hire a market research professional to guide you to make your investment worthwhile. As part of basic market research, surveying and holding focus groups are common methods. Time and money are required for this activity, but it can provide valuable insight into customer demand for your product.

An excellent place to start is with pilot projects

Before launching your product to an entire market, you should test it on a smaller scale. If you're still unsure if the market will react to it, you could attempt it with a few sales representatives.

Make adjustments based on your results.

You should adjust your initial forecast when you get actual sales results for a new product since doing so will involve a lot of guessing or assumptions. In other words, you should monitor sales every month. You will likely gain valuable insights into product pricing, production, and customer response in the first few months.

Here are seven steps to forecasting new products

  • Forecasting the initial sales volume of new products

It is often difficult to collect sales data for new products due to their limited history, making the first step the most challenging. To estimate the initial sales volume of products, companies must use different data sources. Companies should collect the following information:

  • Sales figures from similar products within the same category.
  • A comparison of sales data from similar products sold by competitors.
  • A marketing data source that consists of promotions, advertisements, and coupons.
  • Impact of brand cannibalism on sales

Creating sub-brands to expand a company's customer base is a form of brand cannibalization. Cannibalizing established products can reduce their sales, resulting in heavy profit losses. Supply chain resources must be reallocated and existing product plans adjusted to accomplish this initiative.

  • Assessment of raw material suppliers

To determine which raw materials are best, companies must evaluate their suppliers. To optimize both product launch and procurement effectively, it is sometimes necessary to realign businesses' supply chains. In this case

  • Raw material suppliers must be notified of changes to supply chains for their review and approval.
  • Bill of Materials (BOM) must reflect the new material introduction.
  • A plan must be drawn up to outline changes in the production line before resources are allocated.
  • Estimate the capacity of manufacturing Finished Goods

Defining an organization's overall internal ability for finished goods requires a review of its manufacturing capacity. A company may learn too late that it does not have sufficient space to accommodate the output of the production process.

Management should consider these factors when evaluating the capacity for manufacturing finished goods:

  • I am considering the short- and long-term capacity utilization of existing products.
  • We are projecting capacity utilization percentages for new products, set-ups, and switches.
  • Identifying manufacturing and equipment requirements after samples of raw materials arrive.
  • Establish a production quantity for the initial production

Initial production quantities usually range between 65-70% of the original sales volume. However, depending on the type of inventory, this figure may be different. Warehouses need to be prepared for shipments at least a week before launch to ensure maximum customer demand.

  • Calculate the initial distribution of production

To develop their initial production distribution plan, businesses usually adopt the regional distribution pattern of similar products. In addition to the regional sales team and loyal customers, the finalized plan should include their input.

An adequate distribution strategy can preserve profit margins throughout the supply chain by minimizing inventory costs and time consumption. Transport managers frequently keep a large amount of inventory at the warehouse. That is until demand dictates that it should be distributed to retailers.

  • Keep track of sales and customer feedback

A company needs to monitor its first month after launching a new product closely. Customers, dealers, and retailers can help companies counter emerging threats by providing feedback. POS (point of sale) data should be integrated with other supply chain management systems so that companies can track product activity through the sales funnel.


You might think there are no metrics available to guide your decision to purchase, but there are several metrics you can utilize. Recent product launches, market trends in the same category or brand, and historical trends in similar products should be considered. You can use these guidelines to forecast customer demand for the new product.