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A business plan is essential for business development. But even with a solid plan there is some aspect of unpredictability. There are a multitude of variables that have to be taken into account, any of which could have great impact on the prosperity of a small business.
Sales forecasting may well be the most difficult and complicated of all areas covered in a strategic business plan. To predict sales, a business has to consider numerous economic, demographic, and social variables. Because sales has a major impact on income stream, a business plan should include a continuity strategy for dealing with poor sales performance. But what happens if a business does better than expected?
A lot of small businesses fail to appreciate the impact sales have on customer service resources. Even quality products and services have mishaps, and when this happens customer service will be expected to resolve any issues. The more sales a business makes, the greater the number of product-related issues it will receive.
No business will ever complain about booming sales but it should be prepared for increased customer service issues. If a business finds itself unprepared, the following problems may result:
There are other key business processes affected by increased demand:
Let’s look at the problem associated with each process one at a time. Starting with production and stock:
Production and stock
If goods are made to order: Increased demand instantly places pressure on production. Employees will have to work overtime or the business may have to employ additional staff to complete orders on time.
Product stock levels: Increased orders will eat away at stock levels. A business with pre-existing stock is initially in a better position to cope with increased demand. However, if demand remain high there will be increased pressure on production to fufill orders and replenish stock levels.
In either situation, a business has to have plans in place to deal with a sudden rise in sales. If a business is unable to increase production to cope with demand, there will be a delay in order processing. This is damaging to both reputation and profitability.
Packaging and delivery
More sales means more packaging material is required and a there will be a larger volume of orders to deliver. If a business handles packaging and delivery in-house, then the onus falls on the business to have adequate packaging materials and logistics to cope with a sudden spike in demand.
For the businesses that package goods in house and use a postal service or courier to ship, the responsibility for delivery can still fall on the business. Customers don’t care about high demand excuses and expect a business to have sourced a delivery solution that can process and deliver orders on time, regardless of order volume.
The focus has been on material products. However, all the examples given so far are transferable to digital products or services. Digital products also require production and delivery. A digital product can be affected by limited human resources. The effect of additional demand on supply can impact any product or service.
Businesses often make plans for less-than-perfect situations. Disaster recovery and continuation processes are a pessimistic, but necessary, business fail-safe. A start-up business always hopes its sales will achieve best-case forecasts, but is unlikely to forecast a sales boom. The outcome of this is that not many small businesses factor in adverse effects of high-sales into short-term strategy.
There is nothing foolhardy or unrealistic about planning potential solutions for increased demand. It’s better to have a plan and never need it, than to have no plan and fail to meet demand. Making a plan will only cost some forethought and time. Failing to meet demand will wreak havoc on business reputation and prosperity.