Posts Tagged ‘problem identification’

Sales Forecasting: Crucial to Small Business Success

May 18, 2010

Forecasting sales is never easy, yet the ability to do so can alleviate a lot of headaches, especially for owners of small or family businesses. Small businesses have lots of the same questions large companies do: how much inventory to acquire/keep? How many workers to staff on Wednesday? How much lift in sales will each $1,000 of advertising expenditure generate? How much will sales change if we adjust the price up/down by $1? Most business owners, with all their other pressing responsibilities, have either given sales forecasting a low priority on their task list, or given up on it entirely. This is unfortunate, since an objective system of sales forecasting can greatly simplify a business owner’s planning, identify areas for improvement, and even enhance the value of his/her business. Today’s blog post explains the various benefits of having a sales forecasting system.

Simplified Planning, Reduced Planning Time

With an objective way to forecast sales, business owners can greatly reduce the time it takes them to plan for inventory purchasing and employee staffing. This is because such a system minimizes the uncertainty of tomorrow by establishing educated guesses based on historical sales. Often, decisions based on these measures are more accurate than those made with unaided judgment. A forecasting system recognizes patterns within the data, so that a business owner can make adjustments for seasonality, trends, and business cycle occurrences. For the most part, if sales on Tuesdays have been averaging $2,000 per day and sales on Wednesdays $3,000 per day, then the business owner knows to schedule more staff on Wednesdays and carry more inventory than on Tuesdays. Just knowing how sales are trending saves the business owner some valuable time.

A sales forecasting system can also help a business owner gauge the impact of seasonality. If he/she finds that sales of her product/service in July average 10% higher than baseline monthly sales, then the owner can plan more effectively for those seasonal variations.

Detection of Opportunities and Problem Areas

Forecasting systems can also alert owners of small businesses to problems and opportunities. Returning to our Tuesday/Wednesday example, the business owner may realize an opportunity to get creative with marketing. If the business is a restaurant, the owner may decide to issue coupons and advertise specials to encourage more diners to come in on Tuesdays. The reduced business on Tuesday may also alert the business owner to a problem. If Tuesday is the restaurant’s slowest day, it may be because there’s a weekly event on Tuesdays that the owner is competing against for patrons, or because the restaurant is short-staffed on Tuesdays and many potential patrons choose not to wait. There could be many reasons, but forecasting can alert the owner to the existence of a problem and the various solutions he/she could try.

Reduced Costs, Increased Revenues, Increased Employee Morale

In trying to project sales, a business owner can make two very different mistakes – under and over predicting, – each with its own undesirable consequences. Usually, these mistakes occur when the business owner’s forecasts are due largely to “gut” or other subjective means. When an owner under predicts sales, he/she may not order enough inventory or schedule enough staff. As a result, the business may run out of inventory and not be able to fulfill orders, resulting in reduced sales and lower customer satisfaction. The inadequate staffing can also increase waiting times, which also lowers customer satisfaction. When an owner over predicts sales, he/she is likely to order too much inventory and/or schedule too many workers, which results in large quantities of unsold inventory and excessive labor costs. Moreover, there are both carrying and opportunity costs associated with excessive unsold inventory. Also, inaccurate predictions can adversely affect the morale of a business’ labor force. Frequent overstaffing due to over prediction can result in bored employees, while frequent understaffing due to under prediction can lead to burned-out employees. Either way, employee morale takes a hit. With an objective forecasting system in place, small businesses can minimize the impact of both over and under prediction.

Enhanced Business Valuation

Cash flow is the lifeblood of every business, not to mention the driver of their value as going-concerns. When entrepreneurs buy existing businesses, they want to know how much cash their generating. All things equal, those businesses that generate more cash command higher sales prices than those that generate less. In the absence of an objective forecasting system, discovery of a business’ true valuation can become problematic. Buyers may demand a discount on the price of a business to compensate for the lack of sales certainty; sellers would have no concrete way to justify the price they seek. A forecasting system greatly shortens the value discovery process and makes it less cumbersome and subjective.

In addition, lenders often make decisions based on cash flows and valuation. A forecasting system can possibly increase your likelihood of getting a loan, and also the amount of funding you seek.

ForecastEase Takes the Pain Out of Forecasting

Having a system in place to forecast sales can make your business more successful and your life easier, more enjoyable, and richer. With ForecastEase, Analysights examines your sales and builds models that generate forecasts that will help you with your planning so that you can spend more time on the strategic elements of your business. Once the models are developed, we create a simulator in Excel that lets you build scenarios painlessly and effortlessly. And the models – depending on the fluctuations of the business – are durable, not needing to be updated all the time. Click here to learn more about ForecastEase or call Analysights at (847) 895-2565.

Why is my Marketing Research Useless?

September 30, 2009

Many companies know the importance of doing marketing research.  Yet many do not know how to do it or why they are doing it.  This often leads to market research that is conducted for the wrong reasons, conducted unnecessarily, or conducted incorrectly.  In any of these events, the data you capture and the conclusions you reach will be useless.

When you need to conduct marketing research, always make sure you have a specific, well-defined problem you want the research to solve.  You might notice that sales are falling in a particular territory.  So you immediately try to do a survey to see what might make customers and prospects in that region buy more of your product.  But is declining sales the problem?  Or is it a symptom of another problem?  You need to rule that out before you try to tackle it.

To define the problem appropriately, you need to do some basic exploratory research.  Your business problem then is: “to discover why sales are falling in Territory X.”  So you talk to your sales manager and sales agents in that region.  You might find out that the competition in Territory X is more significant than in your other territories.  Or you may find that  customers in Territory X are likelier than those in other territories to report product defects, that they’ve stopped buying your product.  There can be other reasons.  But once you’ve identified the real problem, you can do the marketing research that helps you address it appropriately.

Another reason marketing research produces undesirable results is that your organization may have too many stakeholders with an interest in the research.  As a result, company politics influences the research that’s done, the questions asked, the vendor selected, and a host of other things that should be handled exclusively by the marketing researcher.  This is a recipe for research disaster.

One prominent association I used to work for wanted to conduct a survey of professionals who used and/or purchased its publications.  The publishing department wanted to understand what the needs of these professionals were, so that they could know what enhancements could be made.  So far, so good.  But the problem was that so many other departments had a hand in the process.  The sales department wanted to know about competition and purchase intent; the content writers wanted to know about satisfaction with specific features of the publications; and the business development department wanted to know the markets in which they had the best chances of success.  As a result, we ended up with a survey questionnaire that was so long, convoluted, and tedious that many respondents abandoned the survey or chose not to take it.  To date, the association has not acted on the findings of the survey, and that’s been a couple of years.  The moral of the story: keep the survey’s objective to a single purpose.  It’s better to do several short surveys on singular topics over time than to do one big omnibus multi-themed survey.

To ensure your marketing research efforts produce insights you can act on, always define your problem clearly and keep a tight focus on the research objective.