Differences in Forecasting Demand for a Product Versus a Service

If a business is to meet the needs of its clients, it must invest time and resources in market research and forecast as accurately as possible its target audience's demand for the products or services it provides. However, the methods and objectives that guide the forecasting process of companies varies widely between companies who primarily sell products and service-based companies.


Although the objective of market research for service-based and product-based companies is similar -- namely the maximum return on the investment of limited resources -- there are also important differences. For instance, product-based organizations need to forecast demand to minimize the cost of inventory while ensuring their clients have access to their products. On the other hand, inventory is not as important of a factor in service-based companies, which must focus more on having access to the knowledge base and trained workers they need to offer the services they sell.

Product Sales Forecast

The nature of demand for physical products, as opposed to services, is especially well-suited for the use of statistical methods in market analysis. Although most demand-forecasting variables are shared by both business models, product-based companies focus more on their existing market share and general consumption levels when assessing demand. For instance, companies trading in fast-moving consumer goods, such as perishable foods and energy consumption, will base their forecasts largely on the income levels of their target audience and the current prices of their products.

Service Sales Forecast

Service-based companies generally have a wider range of variables on which to base demand. While a product-based company must target its research on a particular type of product, such as laptops or a specific type of vehicle, service-based companies look at the bigger picture and use macro-forecasting techniques of industrywide data to estimate future demands on their business. For instance, an information technology provider may not be interested in the demand for a particular type of computer or software but is interested in the the historical data and future projections for the information technology and computer industry as a whole.

Inventory Versus Training

One of the fundamental purposes of demand forecasting for companies that sell products is to estimate what are the most cost-efficient levels for their inventory. If they have too much, the inventory could become outdated or spoil. Supermarkets, for instance, calculate the economic order quantity of a product by comparing how critical it is with the cost of stocking it. Service companies, on the other hand, rarely have to keep a large inventory. However, they must invest strongly on the training and certification of their employees. This requires having enough qualified workers available and ensure regulatory requirements are met. Employing and training skilled staff is both expensive and time-consuming, which requires service-based companies to plan further ahead than product-based companies that have more agile control over their output levels.