As we all know, our economy has been though a rough patch. While there has been some downward movement in interest rates and inflation, borrowing for new projects is still proving difficult for many and our customers are still feeling the pinch which is causing them to think twice before leaping into purchases.
It all adds up to the question – where are we on the curve of economic trends and is the ‘rough patch’ over? Have we reached the low-point; is there still room to fall; or are we starting to creep up the other side?
No matter the economic answer, there are still things you can do to retain your footing against a downward slide or gain traction for the upward climb out of the other side – let’s take a look at some areas you can focus on.
Firstly, let's consider this well-known mantra:
No matter what economic situation you find yourself in, it is crucial to stay grounded in reality, and that any plans you put in place address your actual circumstances.
Understand your breakeven
Do you know what your monthly expenses and debt payments are?
Can you translate that into minimum sales targets that will enable you to break even, at a minimum, or (even better) turn a healthy profit?
For step-by-step instructions on how to calculate your minimum targets, email us to request a copy of our “Know Your Numbers” toolkit here
Having a clear understanding of your financial commitments and the minimum targets required to meet them will help to reduce stress and give you the headspace to focus on getting your business performing to achieve these targets.
Once you know what you need in sales each month - how do you go out and get it?
Turning your targets into sales scenarios that drive results
Understanding your minimum month targets is useful in identifying your reality but there is real power in being able to take this a step further and run scenarios based on analysing your key customers or groups of customers.
Let’s talk about a business that, for example, needs to sell 640 widgets at $20 each to achieve breakeven profitability.
The below example outlines 3 sales scenarios that a business could chose to pursue, depending on how the main customer group/s of their specific business offerings are performing and behaving in the market.
Example Sales Scenarios
Important to note: These examples rely on the total gross margin outcome remaining the same, no matter the mix of products sold. To apply this to your business you will need to investigate further, the impact that selling a greater amount of lower priced products will have on your margin and adjust targets accordingly to ensure the required margin outcome is achieved.
This demonstrates a spread-even scenario, where all customer groups are experiencing similar economic circumstances and demonstrating similar buying behaviours.
If the typical customer groups for Widgets Bronze and Silver are still exhibiting strong purchasing behaviours but the buying ability for
Widget Gold customers is down, then you can assume that focusing
sales and marketing efforts on achieving higher sales for Widgets
Bronze and Silver will return a better outcome for efforts, even though
you need to sell a greater number at a lesser price
Adversely, Widget Gold customers are performing well, Widget Silver
customers remain relatively middle of the road, and Widget Bronze
customers are struggling and scaling back on expenditure - focusing
on winning sales for Widget Gold will have a better outcome as well
as a bonus of needing to sell less items to achieve the same outcome.
Which, all things being equal, may give you and your team more time
and resources to focus on other areas of your business to achieve
greater wins in the future (i.e. process improvement, added
efficiencies, product innovation).
Carrying out a Customers' Customer analysis can allow you to determine which scenario might work best for your business - for more information on understanding your customers, read our blog here
Where to from here?
No matter the economic climate, it's crucial to face reality head-on and base your plans on that reality. When setting targets and crafting your sales strategy, a well-informed and thoughtful approach is essential.
For insights into understanding your business performance and identifying key metrics to monitor, check out our blog on how to know that you are still winning when prices are going up here
If you would like our support to improve business profitability, please get in touch! https://www.velocite.co.nz/getintouch
OR
Email us to request a copy of our “Know Your Numbers” toolkit here
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