Every day a business has expenses. Sometimes the money comes in and sometimes it doesn't. * Does your business have the holiday doldrums or holiday exhaustion? * Are some parts of your business more active than others (sometimes)? There are two ways to measure sales--count the money or count the sales. Sometimes they are related and sometimes they are not. Let's look at some ways to sort this out. How many sales? Sales volume over time is the quantity of items a business sells per unit of time. An item sold is an item sold whether it's discounted or not. A business can track sales volume by customer, per product or service, by product group or by location. Inventory turns is also a simple measure of sales volume. * Sales volume is billable hours for accountants and lawyers.
* Sales volume is widgets sold for a company selling product.
* Sales volume is number of closings for real estate agents.
* It's policies written for insurance agents. The number of items sold is a key measure of business activity. Big changes in volume are easy to see but most changes are incremental that aren't as obvious. Revenue changes do not necessarily predict volume changes. One high volume sale can mask a drop in quantity of sales. A business needs to know both numbers. We want to look at sales volume patterns and their effect on your business. Seasonal businesses Some products and services have natural peak seasons during the year. The best salesman in the world will have trouble selling air conditioners in Canada in the winter. * People buy more air conditioners in the summer.
* They are also more likely to buy a refrigerator in the summer
* Stove sales peak before the Thanksgiving to New Years cooking frenzy.
* Gym membership enrollments peak in January.
* Consumer electronic sales usually peak in March and April. The exception is big screen TVs. They peak just before the Super Bowl.
* Liquor and wine stores sell over twice as much product in December than any other month. Some products, like cars, are both cyclical and seasonal. Track your sales volumes each month to see if this is true for your business. Compare from one year to another. These numbers can also measure incremental improvements in your business or give you early warning when things aren't quite right. Cyclical businesses External factors influence some businesses more than others. Cyclical businesses are in sectors of the economy that rise and fall with such things as interest rates or tax laws. Cycles are can be short (months) or long (5-10 years). * Mortgage volume rises and falls according to interest rate changes.
* Low interest rates drive new home construction.
* Health insurance costs are tax deductions for employers.
* Tax law changes can drive businesses from one state to another. Small businesses cannot control these factors. Keeping in business requires a frank, honest look at cyclical drivers and flexible, creative response to change. What can you do? Appliance store owners have a higher success rate than many other types of small businesses. Let's look at their income streams. * They sell refrigerators in the summer.
* They sell stoves in the fall.
* They have white sales in January and February.
* They sell vacuum cleaners because dirt happens.
* They sell parts and services--breakdowns are much less seasonal than sales. Car sales are cyclical and seasonal. They depend on interest rates and peak sales are in the fall. Sales people earn commissions so the owners don't have fixed salary costs. However, car repairs and maintenance aren't seasonal. These employees tend to be on salary plus commission. Measure your sales and take action We can help you identify the patterns in your business and your industry. We can identify solutions that structure your business to smooth out your sales and revenue. We are Biz 4 the Rest of Us. Copyright 2006 You may re-print the above information in its entirety in your publication or newsletter. For permission, please contact us. |
Home
