How (Not) to Do Forecasting on Amazon

The world of Amazon can make business planning and forecasting a challenge. A lot of sellers operate with their short-term hats on, because the day-to-day demands of the business make it hard to look further out. Forecasting isn’t sexy, and it’s often overlooked. But proper forecasting is critical for your Amazon business in the short and long term, whether you’re a Vendor, Seller, or both.

And good forecasting isn’t just for the biggest brands and best sellers. It’s something every brand can and should use to achieve greater success on the Amazon channel. In this article, I’m going to give you a framework to start creating a robust Amazon forecasting system of your own.

By Scott Ohsman

What About Amazon’s Forecasting Tools?

Yes, Amazon does provide forecasting tools in both Seller and Vendor Central. They operate differently, but both are based on the same consumer data. If you only want to know how many units you’ll need to meet consumer sales demand for the next few days or a couple of weeks, then Amazon’s tools are fine.

However, most brands have much longer lead times—and that’s where Amazon’s forecasting system falls short.

You see, Amazon’s tools are based on consumer demand. As a result, they struggle to account for things like seasonal goods, large promotional periods, or advertising on and off Amazon. Another big difference is that Amazon does not tell you how long you need to have the stock in its fulfillment centers (FC) in order to achieve the sale levels Amazon is forecasting. It also doesn’t factor in transit times. If you’re shipping from a US warehouse or third-party logistics provider, you need to know exactly how long it will take Amazon to receive the products and show them as available to sell.

Here’s an example of how Amazon’s forecasting systems work—and how they fall short. In the last year or so in many categories, Amazon has moved to a mean forecasting system using P70, P80, and P90 projections in Vendor Central. P70, for instance, means Amazon is estimating a 70% probability that weekly consumer demand will be at or below the number of units shown. In other words, there is a 70% chance Amazon will purchase product to meet the level of demand indicated or less.

Screenshot of Amazon’s mean forecasting system in Vendor Central

Remember, this data is an estimate of how much product Amazon buyers are going to need for that week—not how much is actually needed in the FC to maximize those estimated sales. In addition, unlike many retail POS and forecasting systems, Amazon does not show you year-over-year comparisons, which makes it difficult to plan further out. And since the data is shown only on a weekly basis, it can be very time-intensive to format it into a monthly or longer view in a tool like Excel.

There’s a Better Way to Do Your Amazon Forecasting

Our recommended approach to forecasting uses Amazon’s data as a starting point, but takes it several steps further. Read on if you want to learn a simple but powerful framework for creating a robust Amazon forecasting system of your own.

Here’s our basic recommended approach to forecasting:

1. Download your sales history from Seller Central and Vendor Central at least every week and at the end of each month. You can use this to create a rolling sales record that will serve as the basis for your forecasting.
2. Look at your sales by UPC by month and determine what you sold last year for the same time period.
3. See how many units were sent to an Amazon fulfillment center (FC) during that same time period last year. This will help you determine if there were any missed sales because you did not have enough stock available at the FC.

The three-step process above applies whether you’re a Vendor or a Seller, but there are some additional details to be aware of. If you’re a Vendor, you need to look at the shipped units in that period. And if you’re a Seller, you need to look at the units you sent to FBA and/or units you fulfilled yourself using Fulfilled by Merchant (FBM) or Seller Fulfilled Prime (SFP).

One of the biggest benefits of proper forecasting is the ability to count lost sales. Let’s say you’re a Vendor that received purchase orders for 100 units one month but could only fill 50 of them. As you forecast into the same time period next year, you can make a smarter decision about how much inventory to have on hand to meet expected demand.

Finally, make sure your internal forecasting system accounts for units being in the FC 15 to 30 days before you expect them to sell.

Expanding Your Basic Amazon Forecasting

That’s the basic approach, but if you want to make your brand’s Amazon forecasting even more powerful, you should be adding a few more data points to your calculations. Make sure to add fields for:

• any variables that influenced the sales for that period, such as a lost buy box or price pressures caused on or off of Amazon
• promotional events, advertising metrics, if they affected the sales for that month.

Lastly, make sure to note any specific inventory situations for particular SKUs that were caused by slow sales or large unit swings. For example, if you’re a Vendor, there could have been “unhealthy” inventory that got automatically put into the markdown cadence where Amazon begins lowering the retail price for products in inventory for 60 or 90 days.

Once you have all the data in a monthly format for each UPC, then you can start to build a forecast-to-actual tool that will allow you to manage and make rolling adjustments as needed.

The big payoff for this tool will come the following year. At that point, you can take your actuals in the same format and start to build out your forecasting for the upcoming period. If you have to make purchasing decisions 120 to 180 days out, it will be critical to have this information for your supply team. 

Evaluate and Adjust Your Amazon Forecasting Regularly

Another important aspect of successful forecasting is regularly evaluating and adjusting your forecasts as necessary. Don’t just set and forget. You need to manage your forecasts month to month. You should also evaluate even further out, especially when you have special promotions coming up. For instance, if you know the sale you were going to run in three months is no longer happening, you can adjust your forecast accordingly.

Have an Inventory Allocation System

Many brands work under a “first come, first serve” policy with their inventory management, where inventory is allocated to each channel as needed. But this can go very wrong. Here’s a conversation that happens all too often:

“I need 10,000 units of this SKU for Amazon next month.”

“We’re out of stock.”

“What do you mean we’re out of stock? We forecasted 10,000 for this month. I thought we had tons of units in our warehouse.”

“Well, they weren’t allocated for Amazon. There wasn’t any caution tape around them, so they ended up getting sold elsewhere.”

Even if you’re on top of your forecasting, you need to know how much inventory “belongs” to each of your channels. If you don’t have an allocation system that protects each sales channel’s inventory, you won’t be able to maximize your sales on Amazon or other channels. Simply having the right amount of product in your warehouse at the right time doesn’t guarantee that you’ll be able to service the Amazon channel with that product as planned.

Proper inventory allocation can be challenging for a lot of brands and sellers because they don’t always notice (or care) if they’re siphoning from inventory that’s needed on a different channel. But this kind of thing can have damaging downstream effects.

Give Yourself Plenty of Time to Get Ready for the Holidays

Good forecasting may be most crucial when planning for the holiday sales season on Amazon. I’ll paint the picture for you.

To be ready for holiday sales on Amazon, you need to have inventory in FCs by mid to late October at the latest. Let’s say it takes 60 days on average for a new product to be produced in Asia, and 30 days to make it to the US. That’s three months out you need to be thinking about how much product you’ll need for the holidays.

That means, if you’re reading this article in early August, you need to start thinking about and forecasting for the holiday shopping season NOW.

Forecasting Is Challenging but Crucial for Your Amazon Business

Forecasting is just one component of the overall management and success of your brand on Amazon—but it’s an important one. In fact, it’s crucial for the long-term health of your Amazon business, so don’t overlook it. If you need support getting started with or optimizing your forecasting, send us a note.