Question

In: Operations Management

How do you estimate demand?

How do you estimate demand?

Solutions

Expert Solution

As a owner of a business or the manager of a business it is crucial to estimate the right amount of demand for your product. If the number of products produced is more than the demand for it then the company will face a loss. On the contrary, if the number of products produced is less than the demand then there will insufficient product to match the demand. So as a manager of an organization, it is very important to estimate the right demand for a product.

We can estimate demand based on the following factors:

1) One of the basic factor which can help in estimating demand is sales. By calculating monthly sales we can find out the demand for our product. For exa, if average sales value of toys is $4,000 then one can say that market demand for toys is $4,000. But this method of estimation is limited as it gives the demand for a particular store instead of giving the entire market.

2) Demand can be estimated based on demographic survey. Compare the sales by taking any demographic factor such as age, income or place of residence. Check how many people of different age, income or from different regions have demands for a certain product of your company or you can use total population value like how many population have preference for wooden products, plastic products or some other products. This will determine the national demand for that product.

3) Local survey can also help you to make an estimate for your product if you own business in your local area only or survey nationally if your business is spread throughout the country.

So in this way we can estimate the demand for a certain market.


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