Every year, a startling number of small businesses close down for good. While there is some variation in the reported number of failed businesses annually, best estimates say between 60% and 80% will close within their first two years. Certainly the reasons for failure are as varied as the businesses themselves. But what are the takeaways? And more importantly, how do small businesses thrive where others fail? Perhaps the secrets lie in your data. Many first time business owners have decided to work for themselves because they have the passion for a particular lifestyle segment, whether it’s delicious food, a great craft beer, or a well made product. For many though, passion is relied on too heavily, and business expertise is seen as a lesser necessity. Without the appropriate tools to understand of what’s really happening in your business, it’s a lot easier to miss the warning signs that spell out danger if left unaddressed.
Benchmarking is one of the greatest tools available to small business, yet all too often owners and operators fail to do so fully or appropriately. Benchmarking is the practice of comparison to a set standard of data over time. While the profits are an attractive data point to track, if you’re only tracking profit, without understanding the components that contribute to it, you’ll have a much harder time understanding why things are changing for the worse when they do.
If you’re not diving deeper into your data, here are some key points to start monitoring to clued into what’s happening.
Total Transactions: Sales might be up slightly, but how’s your traffic? Are fewer people spending more money than they were last month? That might be okay for now, but if you continue to lose customers, it’ll be harder to keep up your revenue.
Average Transaction Size: Again, total sales dollars might be up, but are customers spending less than they were at this time last year? If average transaction size is down by more than a few percentage points, something is happening that you need to research. Have you changed your menu or your product offerings? Has your average item price declined? Customer satisfaction surveys are a great way to collect feedback to find out what customers want, potentially leading them to spend more money.
Inventory Movement: Aside from just collecting customer feedback regarding what they want more of, it’s important to use data to actually see what your best sellers are over time. Does it change or do you have clear winners? Products that take longer to sell are hurting your bottom line. Not only are they taking up valuable real estate, but they also limit your ability to purchase new items as that capital isn’t available to you. If you’re running a food establishment, products that take longer to sell also risk spoiling, ultimately costing you more than they’re worth to you.
Labor: Labor is one of the largest costs for any business, so keeping tabs on any changes can help you ensure that costs aren’t spiraling out of control. Are the labor hours consistent to your need? Over scheduling is a labor waste, but under scheduling can leave your employees overworked, your customers underserved, and you could be subject to overtime costs. While there are times that circumstances will make this unavoidable, managing these variables to deliver the appropriate level of service without creating burnout is a benefit to your business that can’t be overstated. Luckily, it’s easier than ever for business owners and operators to keep tabs on the variables that impact their business. With our new manager app—Insights by Revel—you can even track your business in real-time from anywhere. Don’t be an avoidable statistic. This is definitely one instance where ignorance isn’t bliss.