The Beginner‘s Guide to Demand Planning in Sales

Are stockouts killing your customer reviews? Is excess inventory eating your margins? Unsure what changes to make to keep your business competitive? Having a strong demand planning strategy can help.

In this comprehensive guide, we‘ll share everything you need to know about demand planning in sales, from what it is and why it matters to a step-by-step process for creating your own plan.

By the end, you‘ll be equipped with expert tips, best practices, and a toolkit of templates and resources to optimize your sales operations. Let‘s dive in!

What is Demand Planning?

Demand planning is the process of forecasting customer demand for your products or services and adapting your operational strategy to meet those projected needs. The goal is to strike the right balance between having enough supply to satisfy your customers without tying up excess capital in inventory or resources.

A 2020 survey by Bain & Company found that the #1 challenge facing sales operations teams is "inaccurate demand forecasts". Without a clear picture of upcoming demand, businesses often face issues like:

• Stockouts and backorders frustrating customers and damaging brand loyalty
• Excess inventory taking up space, tying up cash and requiring markdowns
• Incorrect staffing leading to long wait times or unsustainable overtime
• Inability to adapt to market changes and competitive pressures

Effective demand planning helps companies get ahead of these challenges proactively. The process involves looking at sales and market data, setting demand-driven operational targets, and fostering cross-team collaboration to turn plans into action.

Some key benefits of demand planning include:

• Improved forecast accuracy: Companies can reduce forecast errors by 30-50% with demand planning (Gartner)
• Increased sales: Best-in-class companies have 15% higher perfect order rates and 17% shorter cash-to-cash cycle times (Aberdeen Group)
• Reduced costs: Demand planning can cut inventory by 10-30% and transportation costs by 5-10% (McKinsey)
• Enhanced agility: 70% of demand planning technology users can respond to market shifts within weeks (Anaplan)

In short, getting demand planning right can be a major competitive advantage for your sales org. But how does it differ from demand forecasting? Let‘s clarify the two concepts.

Demand Planning vs. Demand Forecasting

While often used interchangeably, demand planning and demand forecasting are two distinct but related processes:

Demand Forecasting	Demand Planning
Predicting future customer demand using data and analytics	Proactively preparing operations to meet forecasted demand
Owned by sales, marketing and finance	Cross-functional ownership including supply chain and operations
Focuses on expected sales quantities by product/region	Focuses on inventory, production, staffing and distribution
Example: Forecasting a 20% increase in sales next quarter	Example: Increasing inventory by 20% to meet the forecasted growth

Essentially, demand forecasting is a critical input into the broader demand planning process. You need an accurate prediction of sales volumes to create an effective operational plan.

Why Demand Planning is Critical for Sales Success

Traditionally, demand planning was left to supply chain and operations teams. But in today‘s customer-centric world, involvement from sales is non-negotiable. Consider these statistics:

• 62% of customers say they share bad experiences with others (Salesforce)
• It takes 12 positive experiences to negate one bad one (Ruby Newell-Legner)
• 67% of customer churn is preventable if issues are resolved in the first interaction (Kolsky)

Demand planning directly impacts the customer experience. If sales doesn‘t have visibility into inventory levels, wait times or product changes, they can‘t effectively serve customers or manage expectations. This leads to frustration, negative word-of-mouth and potential churn.

In contrast, when sales and operations are aligned through demand planning, companies see results like:

• 15% faster quote-to-cash cycle times (Aberdeen Group)
• 17% higher perfect order rates (Aberdeen Group)
• 56% higher success rate on upsell/cross-sell offers (Accenture)
• 36% greater customer retention rates (Accenture)

By connecting the dots between predicted sales and operational realities, demand planning helps you consistently deliver on your brand promise. You‘re able to give customers what they want, when they want it – without overextending your resources.

Let‘s look at how you can implement the process in your own organization.

How to Create a Demand Plan in 4 Steps

Developing a demand plan is equal parts art and science. It requires a mix of quantitative analysis and cross-functional collaboration. While the exact process will vary by company, most businesses follow these four key steps:

1. Gather and Analyze Demand Data

The first step is gathering historical sales data and applying analytics to determine baseline demand. Most businesses look at metrics like:

• Average sales by SKU, customer and region
• Month-over-month and year-over-year sales growth rates
• Seasonal sales patterns and trends
• Sales pipeline volume and conversion rates

For example, let‘s say you‘re a demand planner for an apparel brand. You‘d pull historical order data from your ERP system and use Excel or demand planning software to calculate sales by product category, channel and region for the past 3+ years.

You might find that your women‘s dress sales spike every May (prom/graduation season) and December (holiday parties). Running a year-over-year analysis, you see that category grew 15% last year.

Next, layer on pipeline data from your CRM. You have 20% more active leads this year than last, and your average lead-to-purchase conversion rate is 5%. Therefore, assuming all else equal, you could project 16% growth (15% historical growth rate x 1.05% conversion uplift) in women‘s dress sales this coming May and December.

Of course, demand isn‘t just dictated by past sales. You also need to factor in market conditions and competitive intelligence, such as:

• Planned marketing and promotion activities
• Anticipated product launches or discontinuations
• Macro-economic factors (e.g. consumer confidence)
• Competitor moves and market share shifts

For instance, if you plan to boost digital ad spend by 20% this May, you might increase the dress forecast by a few additional points. In contrast, if a major competitor launches a new dress line, you may hedge your projection a bit.

The goal is to paint a comprehensive, data-driven picture of where customer demand is headed in the coming months. Document your analysis and share it with key stakeholders to get their input and buy-in.

2. Set Demand-Driven Targets

With your baseline demand established, the next step is translating the sales forecast into operational goals and metrics. This will serve as the roadmap for your demand plan.

Continuing our example, your targets might be:

• Increase inventory of women‘s dresses by 15% in April (for May sales) and November (for December sales)
• Cap stockouts and back-orders at <3% of total dress SKUs
• Reduce average delivery times to 2 days for 90%+ of dress orders
• Maintain margins at 60%+ for the dress category

Other common demand planning metrics include:

• Forecast accuracy
• Perfect order percentage
• Stock-to-sales ratio
• Days of supply
• Customer satisfaction score

Be sure your targets align with overall business objectives and are realistic given your operational constraints. Establish clear owners for each metric and a cadence for reporting on progress (e.g. bi-weekly demand planning meetings).

3. Align Stakeholders Across the Business

A demand plan is only as good as the cross-functional collaboration behind it. Once you have your targets, schedule a kickoff meeting with stakeholders from marketing, product, supply chain, finance, and customer service.

Share your data, proposed forecasts and targets. Gather their input on potential risks and upside opportunities. Discuss any process changes or resource requirements to operationalize the plan.

For example, key action items for our dress forecast may include:

• Marketing: Develop promotions calendar and sales-driving campaigns
• Product: Accelerate new dress style development and approvals
• Supply chain: Place POs with vendors to secure fabric/trim and capacity
• Finance: Approve budget for additional inventory and ad spend
• Customer service: Staff up and train agents on dress product info

The best demand plans cascade goals down to every level of the organization. A merchandising analyst should know how a shift in dress fashions may impact their buy quantities. A customer service rep should be able to articulate why certain dresses may be backordered.

Establish frequent communication and an issue escalation path to keep everyone rowing together. The S&OP process is a great mechanism for this.

4. Monitor, Measure and Adjust the Plan

Demand planning isn‘t a "set it and forget it" exercise. Customer needs, market dynamics, and your own business priorities will evolve. Your demand plan needs to evolve with them.

At minimum, review performance to plan monthly. Compare actual sales to forecast, diagnose root causes of any misses, and course correct. Let‘s say dress sales in May come in 5% below projection. Upon investigation, you discover that a fabric shortage with a key supplier led to greater-than-expected stockouts.

Armed with that insight, you could adjust the supply plan by approving alternative fabrics or adding backup vendors to the mix. You might also alert marketing to dial back demand-driving promotions until inventory levels recover.

These periodic check-ins ensure small gaps don‘t snowball into major supply/demand imbalances. Many demand planning technologies can also help simulate what-if scenarios and recommend actions to get back on track.

Demand Planning Best Practices from the Experts

We‘ve covered the why and how of demand planning – but what about the keys to doing it effectively? Here are three best practices from industry leaders:

1. Take an Outside-In Approach

"Leading companies don‘t just look at historical sales. They monitor external signals like market trends, consumer behavior, weather, and commodity prices to anticipate demand shifts. Incorporating real-time data dramatically improves forecast accuracy." -Eric Wilson, Director at Deloitte

2. Connect Planning to Execution

"Best-in-class organizations link their demand plan directly to the production schedule and inventory positions. There‘s clear visibility from the sales forecast down to individual SKU-level stock targets…This ensures that supply consistently aligns with demand." -Patrick Bower, Senior Director Analyst at Gartner

3. Prioritize Change Management

"The biggest pitfall we see is viewing demand planning as a technical challenge, not a people one. You need to put significant energy into changing mindsets and driving adoption. Help the front-line understand what‘s in it for them." -Amit Bhatia, Partner at McKinsey

Putting Demand Planning into Practice

As a demand planner at a Fortune 500 consumer goods company, I‘ve seen firsthand the impact of getting the process right. Last year, we were facing huge supply shortages on one of our top-selling toys heading into the holiday season.

The sales team was in panic mode, frantically trying to secure more inventory as angry calls from major retailers started rolling in. Meanwhile, our operations group was working around the clock to ramp up production, but lead times were 8+ weeks.

Tensions were at a boiling point – until our CEO called an emergency S&OP meeting. By sitting down and methodically walking through everyone‘s data and constraints, we aligned on a recovery plan:

• Sales worked with retailers to prioritize POs and manage customer expectations
• Marketing pivoted holiday ad dollars to an alternate product to relieve pressure
• Supply chain expedited component orders and added an extra production shift
• Finance authorized rush charges to get the toys on shelves in time for Black Friday

In the end, we delivered 95% in-stocks for the holidays and exceeded our revenue targets. It was a powerful lesson in the importance of cross-functional demand planning – and the risks of operating in silos.

Start Your Demand Planning Journey

No matter your industry or role, demand planning is an essential capability in today‘s customer-driven world. And while there‘s no one-size-fits-all process, you can set yourself up for success by:

1. Analyzing historical data and market signals to predict demand
2. Setting clear, measurable targets to align operations to the forecast
3. Collaborating across functions to create and execute the plan
4. Continuously monitoring, re-planning, and improving

The most important thing is to start small and iterate. Focus on a handful of key products or channels and gradually expand your scope. Celebrate quick wins to build momentum.

Ready to put these lessons into practice? Download our free demand planning toolkit below, complete with templates, checklists and case studies. And for hands-on guidance, reach out to our team of sales ops experts.

Your customer relationships – and bottom line – will thank you.