If you are a business plan writer planning how to start a new business, you have to make some assumptions. For those assumptions to have some credibility, you should be aware of industry metrics. Unless the business you are starting is truly the first of its kind on the planet, you should be able to find some metrics based on what is typical for the type of business you are planning. As an example, fast service restaurants likely have developed correlations between traffic and sales. There is a reason why these types of restaurants are located on busy streets. A certain amount of the cars that are passing will stop and each car that stops will make an average purchase. These three numbers - the traffic count, the percentage of those cars that will pull in and the average purchase per car should give you an average sales figure to benchmark your own projections against. If you plan on stopping more cars than average or sell more to each car than average, you should have an explanation of these projections in your business plan. Another example can be found in retail. One key in retail is to turn over inventory as often as possible. The dollar amount of inventory in your store, which may be limited by the size of your store, and the number of times that the inventory turns over, provides a reasonable projection for annual sales. Find out what the average amount of inventory per square foot is for the type of store you are planning and the number of times others in your type of business turn over their inventory. Like the previous example, if you are planning sales higher or lower than the industry averages, include an explanation of why you are planning for that difference in your business plan. Whatever the industry, whether you are feeding beef cattle, unloading containers off ships or selling ebooks online, there are likely a few key metrics that can be used as benchmarks and probably a lot of research is being done by somebody somewhere on how to improve results of those equations. Of course, if someone is spending a lot of money doing that type of research, they are likely going to keep their findings confidential. So how does the average small business owner access these numbers? There are a few ways inexpensive research can be done. Obviously, check a search engine first and see what you can find out on the Internet. Industry associations may have the numbers you are looking for and be willing to share them. Similar business resources can be found through organizations like the Chamber of Commerce. Depending on the business, it may be as simple as asking someone else in the business. Go ask a couple of people who are managing the type of business you are entering and find out from them what the numbers are. They may not divulge the stats for their specific business, but they may share industry standards. If you are able to attend a trade show or convention in that field, you may be able to talk to several people in the industry in a short period of time. If you include your research into industry metrics in your business plan and explain why your assumptions are the same as, or deviate from, those metrics, it will give your assumptions and your business plan a lot more credibility than your assumptions on their own. |
