When you’ve got all of your financial information in front of you, it can feel overwhelming. Especially when it comes to business finances. If you followed our last guide ‘Doing the Math’ you should now have a much clearer overview of your financial performance in the previous year and roughly why it performed this way. The next stage is to look for patterns within the numbers that can serve as clues for planning.
Start with the Customer
A good place to start is by sorting all of the orders by the customer. If you sell fast-moving items such as food or fashion, it will be better to approach this slightly differently. For fast-moving items look at the largest order values or total repeat orders for the top percentile, middle percentile, and bottom percentile. If you have customers who use your business as an ongoing service, or something that fits this category closely, sort customers from largest to smallest.
It doesn’t really matter how you do this, the end goal is the same. You want to figure out who your biggest customers are; whether that’s another company for a B2B or the biggest category of individuals customers for a B2C organization.
When you carry out this task, be mindful that things might not always be as they seem. Large customers might have been in a position to negotiate additional discounts. Small customers might actually contribute more to the bottom line. This is why it’s so important to carry out a financial assessment rather than make assumptions.
The Pareto Principle
You might find the ‘pareto principle’ to be true in your own stats. This is when roughly 80% of your sales are generated by just 20% of your customers. The higher that percentage (80%) the riskier it becomes for your business. You know the phrase ‘don’t put all your eggs in one basket’; this couldn’t be truer when it comes to customers/clients. Of course, there are some industries where this can’t be avoided due to a small number of prospective customers. However, in cases where this is not true, try and nurture smaller customers and find new ones to reduce your overall reliance on the ‘whales’.
Answer these questions:
- Are specific customers or industries (B2B) more responsive to your business compared to others?
- Does this offer you any clues on where to find future customers?
We can now drill down further and turn our attention to look at specific orders. So rather than focusing on the customers now, it’s time to look at the products or services that were ordered the most and the least.
Answer these questions:
- What is the average order size?
- Which is the most popular and least popular item/service to be ordered?
- Is there anything you can do to increase the average order size? Can you increase your upselling efforts?
- Why are certain products selling better than others?
- Can you make any changes to improve the appeal of the least popular items?
If you’ve successfully carried out part one, part two and now the third part explained in this article, you should have a solid foundation for a plan to move forward. In the next installment, we will show you how to look for new opportunities for growth.