How’s Your Crystal Ball
by Ray Silverstein
When you own a business, you need to be able to tell the future. To know where revenues are headed and what resources you’ll need. The good news is, you don’t need to be clairvoyant to see what lies ahead.
Because you have something better than a crystal ball: your business indicators. Some indicators are nearly universal (i.e., the economy), and some are unique to every business. Either way, when you track your indicators, including those listed below, you can get a handle on the future.
Indicator #1: Present and Future Sales
Reviewing current orders is the first step to projecting revenues. But you can estimate even more accurately if you factor in outstanding bids/proposals.
For example, review past proposals for the last 12 months. What percentage did you close?
Apply that percentage to today’s proposals, and you’ll get a sense of where you’ll be in X number of days, depending on the length of your sales cycle. In essence, you’re diagramming your sales funnel. (Then you can also work backwards to determine how many proposals you must generate to hit your sales goals.)
Indicator #2: Service/Maintenance
If your sales have a ‘tail’—i.e., the initial sale will result in service activity down the road—that’s another indicator.
Say you sell and service equipment. By analyzing past maintenance activity, you can predict what service/parts will be needed when. Apply that information to your equipment in the field, and you cannot only proactively line up parts and staff, but anticipate maintenance-related revenues.
Indicator #3: The Domino Effect
Certain activities in one industry impact related industries. If you can pinpoint those relationships, you can use them to make projections.
For example, one of my PRO peer group members is in the furniture business. By talking to her customers, she found they shared one common denominator: many had purchased homes within the prior 6-12 months. By tracking the local housing market, she can project which way sales are trending.
Indicator #4: Fill-in-the-Blank!
There may also be some indicators unique to your business. Keep a look out for them.
For example, years ago when I owned a manufacturing company, I used to sell to a well-known mail order house. This was before the Internet. Every day when the mail arrived, the mail order staff would immediately weigh it. Yes, weigh it. The company’s savvy owner knew the value of his average order and had calculated the number of orders that made up a lb. of mail. So hours before the orders were processed, he knew what the day’s sales would be.
Indicator #5: The Local Landscape
Your business is part of a local community. Depending on what you sell or do, all kinds of local activity may affect you: big construction projects, hiring moves by major employers, even the school calendar. By staying abreast of your community and keeping tabs on local business news, you can get a sense of what will impact your business.
So, put away your tea leaves and cancel your appointment with Madame Marie. Learn to track and read your key business indicators, and you’ll be able to predict what the future holds.
Ray Silverstein is president of PRO, President’s Resource Organization, a network of entrepreneurial peer advisory groups in Phoenix and Chicago. He is author of “The Best Secrets of Great Small Businesses,” and “The Small Business Survival Guide.” He has partnered with the Phoenix Business Journal to bring you access to the Journal’s Digital Portal, a goldmine of potential business indicators. For more information, contact Ray at 1-800-818-0150 or firstname.lastname@example.org.
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