You can learn a whole lot by visiting your competition.
Q: I’m currently creating a business arrange for a start-up bridal salon. Although I’ve a good grasp on my business idea, I’m having a whole lot of difficulty finding financial information on my competitors-there are no trade publications. How do i estimate sales without knowing what my competitors are doing?
A: You’ve reached the main point where entrepreneurship hits the streets. Begin by reading “Making Projections” and “Projecting Income” to understand how exactly to project revenues making use of your business design and exploring different scenarios. But before your business design can provide you good projections, you need to get some good good numbers to pump through it. Suppose your business design assumes you’ll receive people mainly through foot traffic. If 50 people head into your store every day and make the average purchase of $20, that’s $1,000 each day. But are those numbers realistic? Most likely not. But don’t start the business enterprise before learning if it’ll work-first, get realistic numbers from your own competitors.
Your competition is unlikely at hand you the numbers you want. So get out in the field and begin collecting. That’s where entrepreneurship gets smart. Camp out before competing stores for a day or two and count just how many people enter the store. Just how many leave carrying a bag, having made a purchase? Ideally, you wish to stake out a competitor that gets foot traffic similar from what you experience at where you are.
The next step? Walk inside. Pay attention to people shop. Just how many are buying big-ticket items vs. less costly items? When you can get yourself a sense of the common purchase size, that may provide you with a realistic number for your financials.
Also notice where your rivals advertises. If indeed they have a 1/4-page ad in Bridal Weekly, call the magazine and discover just how much a 1/4-page ad costs. Then, go to the store to obtain a sense for just how much traffic is everyday foot traffic, in comparison to just how much is “destination” traffic from the ad, the Yellow Pages or another marketing program.
Your goal is to learn just how much pull they’re exerting in the marketplace. You understand your own marketing and advertising plans, so that you can guess just how much pull your marketing program provides into the store. Be sure you enable ramp-up time. They might be getting plenty of customers from an individual ad, but which may be because they’ve advertised and had word-of-mouth and a physical presence for several years. You might start with the same ad campaign, nonetheless it would probably still remember to create a similar clientele.
If you are likely to do some serious scouting, capture all you can about how exactly they generate revenues. What to consider include:
- Average purchase size.
- Number of customers (and how that changes according to day of week, season etc).
- Percentage of customers who are repeat vs. one-time customers.
- Profitability of what folks buy. (You need to estimate this, but if they are buying popcorn at a movie, you understand it’s higher-profit than chicken fingers, in case you don’t know how much.)
- Why people buy at your competitor’s store. (Could it be price? Convenience? Atmosphere?)
Then start tweaking. Have you got ideas for boosting the common purchase prices of items? Factor that into your equations. Do you intend to follow more or different business than your competition? If so, then change your customer numbers to complement. You’re not after a precise prediction; you’re after a contrast between you as well as your competitors.
If you are checking out your competition, also estimate total supply and demand in your town. If your town has 1,000 people, as well as your competitor is attracting 800 customers each year, you might capture half that market (providing you each 400 customers). Not good–400 customers isn’t enough to sustain either of you, and you will both walk out business.
If your industry has plenty of competition, be sure you believe the marketplace demand will there be. Otherwise, your business may simply bring overcapacity, lower prices and a depression to the complete industry in your town. Just to illustrate: Movie exhibitors began building 20-plexes frantically in the late ’90s. Whilst every theater looked like an excellent idea, they weren’t watching competitors. The result? Way too many movie seats without enough move attendance to complement. Many theaters went under, and even the survivors had trouble earning money.
Supply and demand may also work on your side. If you own 1 of 2 bridal shops in a town that’s growing by thirty percent each year as unmarried 20-somethings move around in, there is most likely ample room for most new bridal shops.
Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities had a need to succeed. He brings to bear skills as a business owner, teacher and technologist in assisting others create successful ventures.
The opinions expressed in this column are those of the writer, not of Entrepreneur.com. All email address details are designed to be general in nature, without regard to specific geographical areas or circumstances, and really should only be relied upon after consulting a proper expert, such as a lawyer or accountant.