Volatility, Peaks and Valleys
There was a time in our business when we could count on month-to-month and year-over-year sales being relatively stable. Not so much today. We continue to see bigger peaks and valleys in sales month to month and year to year.
What are the reasons?
- Changing product mix. Many of the more regularly ordered products have declined in the digital age, and the work remaining tends to be more “project” oriented that may not repeat as often or at the same time year to year.
- Industry consolidation. Firms that are fortunate to find a competitor to buy get a big spike that will not repeat.
- Customer size. Key customers tend to be relatively larger than in years past. Adding or losing one or two can cause a large swing in sales.
What to do about it?
- Analyze and prepare. I haven’t told you anything you don’t already know. However, if you haven’t taken a critical look at the mix of products you sell and the profile of your current customers compared to five to 10 years ago, you should. It will give you some idea of how to plan for the future.
- Manage for volatility. Maintain a strong balance sheet; cash is king. Staff for the valleys, and outsource, hire temps or use overtime during peaks.
Yogi Berra once said, “If you don’t know where you are going, you will end up somewhere else.” The need for planning was never greater, but planning for volatility has never been more difficult. In our franchise network, we offer a comprehensive Business Assessment and Planning tool and consult with our franchise members on how to analyze and prepare for volatility. If you don’t have a tool like this, I suggest you get some outside help to take a hard look at how you can better manage for volatility. It’s not going away. It just makes good business sense.