V4B Business Finance

How to manage seasonal demand

seasonal demand

Many businesses face the problem of seasonal demand – fluctuations in trading due to external factors – and some provide goods or services largely only used during a certain time of the year.

Changes in seasonal demand present numerous challenges in navigating complications affecting stock, production, and staffing levels, especially in the retail sector.

More than a quarter of UK business revenue – £548 billion – is driven by seasonal peaks. These occur through factors such as weather-related changes in spending or holidays like Christmas and school summer breaks.

But how do you overcome the difficulties caused by seasonal variations in demand? How can you manage the ups and downs?

You can find out here.

Seasonal business problems

Typical difficulties faced by seasonal businesses include:

  • Insufficient stock to meet high seasonal demand.
  • Inability to pay suppliers.
  • Suppliers unable to meet increases in demand.
  • Long waiting time for customers to settle bills.
  • Too few or too many employees.

Without diligent planning, seasonal businesses may suffer financial losses due to a substantial rise or fall in demand for its products or services.

Here are some ideas on how you can lessen the impact of seasonal demand on your business to help make sure you’re prepared across the year.

Predict patterns in seasonal demand

Analysing previous trading makes it easier to accurately predict future demand.

Gathering data on sales volume and identifying periods of low and high demand allows you to determine trends over the course of the year.

The longer you collect data, the more precise trading predictions become, and you can start to make decisions confidently based on established patterns.

Researching your industry in general and how seasonal demand is affecting your competitors can also help you understand fluctuations in demand for your products or services.

Your business may get a substantial increase in demand over the summer months, for example, or business may drop off during this time.

Over time, patterns will appear that can enable more effective planning on resources such as stock purchases and staffing requirements.

Build up surplus stock

A surplus of stock is critical in managing seasonal variations when demand is high.

In some businesses where the market tends to fluctuate to extremes, record levels of demand may have to be met.

While this can be a positive sign, if you can’t satisfy increased demand you may have to start turning business away. This can damage your reputation and your sales figures and lead to loss of repeat business.

However, accumulating a surplus stock may require a significant outlay that you can’t afford without jeopardising cash flow.

One solution is a business loan so you can bolster your inventory in order to fill seasonal orders quickly and keep your customers happy.

Create a flexible workforce

Managing staffing levels – more workers during busy spells and fewer at other times – can be a tricky balancing act if your business is affected by seasonal consumer trends.

The key is to build a small core team to work with you throughout the year on operations that are required all the time, and then hire seasonal staff to handle the peaks.

If you find seasonal staff who become regulars, you won’t have to keep training new workers. Regulars could be pensioners happy with a permanent but short-term commitment, or students looking for work every summer.

Manage cash flow effectively

Seasonality is one of the main causes of cash flow problems in small businesses.

These issues are often triggered by increased production costs to meet high demand, coupled with having to wait for customers to pay you.

Many businesses turn to debtor funding – or work-in-progress (WIP) finance – to generate revenue against unpaid invoices.

Know when to boost marketing

Increasing marketing activities at the right times will help maximise the benefits of your peak season.

Take the travel industry as an example. The traditional holiday season is summer but many people start looking for holidays in January.

Keep suppliers in the loop

Good communication between yourself and your suppliers is another crucial step in managing seasonal demand.

When they know in advance what you expect from them, they can order materials accordingly to ensure cost-effective production with no waste, while providing you with the stock you need when you need it.

Consider diversification

Depending on how much effect seasonal demand has on your business, you may want to think about diversification by redirecting some of your resources so you can make better use of quiet periods.

For instance, if you have surplus cash when demand is lower you may be able to develop a new product or service to provide an additional stream of revenue.

This could expand your customer base, increase sales, and help make your business more resilient to variations in demand across the year.

Offer discounts out of season

Special offers can persuade potential customers to part with their cash even out of your peak season. Offering discounts also motivates customers to keep track of your offers all year round.

What are the main reasons for seasonal variations in demand?

Patterns in seasonal demand can re-occur over quarters, months, weeks or days.

Examples of seasonal demand include occasions such as Christmas or Ramadan, and annual events like Valentine’s Day and Bonfire Night.

Another cause of changes in consumer activity is the weather – sales of warm clothing rise in winter, for instance, but drop in summer in favour of swimwear.

Other factors at play include increased demand for different types of goods during retail calendar landmark occasions.

For example, parents flock to the shops during August to kit out kids for the start of the new school year in September.

And Black Friday, which originated in the US, has transformed the last Friday of November into one of the biggest days in the UK retail calendar, with huge discounts to encourage spending.

The key to year-round stability

Seasonal variations in demand need not necessarily be cause for undue concern. With smart management and efficient organisation, businesses can still prosper, both in peak seasons and traditionally quieter periods.

In general, patterns in seasonal demand remain constant. This makes it possible to carry out a realistic assessment so factors such as expenditure and promotions can be adjusted to achieve optimal sales throughout the year.

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