Does your business suffer from an increase or decrease in sales during particular days, weeks or months? If it does, you are not alone. Most of the businesses I have given consultancy or get involved with in a way or another suffer from seasonality. Factors such as the weather or holiday periods can affect your business performance.
Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.
Let me give a few examples:
The most famous one is ice creams. Ice cream vans sell more ice creams when the weather is hot. Restaurants sell more soup when the weather is cold. Accountants prepare most of their clients’ tax returns from April to July (3 months after the beginning of the new financial year) and almost 50% of all the clients tax returns are processed in January every year close to the tax return deadline. Restaurants and pubs become overcrowded during Christmas and New Year. Beauticians and beauty salons also suffer from seasonality during the summer when most of their clients are enjoying their holiday season with their children.
Appliance manufacturers produce air conditioning for the summer and heaters to be used during the winter. Many firework businesses manufacture their fireworks during the whole year and sell approximately 85% of their stock during the festive seasons, especially during New Year. Gym Centres become very busy during the spring and the beginning of the summer but you can clearly see that the vast majority of people prefer to visit their local gym at the beginning of the week and during peak times (mornings and evenings).
My objective here is not to give too many examples so I will finish with the one I like the most. The tube network managed by Transport for London is one of the most seasonal businesses I know: Almost 80% of commuters take the tube from Monday to Friday at two different times: from 6:30 to 9:30 and from 16:00 to 19:00 (peak hours).
How difficult do you think it is to manage and maintain the whole tube network when they suffer from such seasonality? It must be very hard.
The last time I visited one of my clients who is a street vendor in Oxford Street i was amazed to see a few umbrellas hanging in his stand. It was actually summer and he was also selling cold drinks, coconut water and ice creams. He told me: ‘Listen Rod, I cannot control the weather. If it is a sunny day I keep selling cold drinks. Now, if it starts raining I will start selling as many umbrellas as I can’. It was the best example of seasonality I have heard in my life.
Now, why do you think it is important to know about business seasonality? Because you will always be able to plan in advance what to do. Seasonality and planning must walk side by side. Having an increase in sales during specific periods of time means that you will need more staff and stock during these periods. Perhaps you will also need to work longer hours and reallocate your business resources better. On the other hand, you also need to be prepared if sales fall. If your business employs most of its staff on a temporary basis and they are happy to know they will work for a specific period of time I don’t see any problem. But if your business needs most of its employees on a full time basis, it will not be easy to manage the employees during the seasonality when sales fall. At the end of the day everyone has bills to pay all year round. You must make sure that the profit accumulated when there is a rise in sales is not used to cover losses from when sales fall. Before signing a year rental agreement you must take into consideration how your business will suffer from seasonality.
What could you do to make sure you don’t suffer from seasonality?
- Find out if your business suffers from seasonality: You can always find out this information through research or by speaking to other players in the same business segment;
- Premium prices: you can charge a little more during the peak times;
- Price discounts: you can give special discounts when you know that during specific periods the number of clients always fall;
- Membership: you could find a way in which to make your loyal customers become members and then you offer them specific plans for them to pay you on a monthly basis rather than when they visit you sporadically;
- Networking and groups: Is your business in a specific segment which has groups and networks? in some cases businesses in the same category could recommend their clients if they cannot deal with their own customer demand;
- New products or services: you can also find alternative products or services to offer during periods that you know your sales will fall;
- Employment agencies: make sure you know a few employment agencies that work in your business industry for when you need to recruit extra staff;
- Keep selling: The strategy here is sell as much as you can to keep business profitability for as many months as you can. Ideally, your business should make a profit every month and should increase the profit margin when sales rise during the best season;
- Start getting sales bookings in advance: Aim at getting pre order sales booked before the best months. This way you will know how to plan in advance;
- Always keep the high standards in the quality of service: You always need to keep the same high standards in the quality of service no matter how busy or empty your business is;
- Stock control: make sure you keep good control of your stock. Stock can translate into money tied up and could be used for another purpose;
- Keep in touch with your customers: you must communicate with your customers as often as you can. When was the last time you sent them a message to let them know about a new promotion or a new product you are looking to sell;
- Give preference to existing clients: I don’t want to be rude in this advice but if I have a restaurant and there is only one table available, I would rather give this table to an existing client who has visited my restaurant a few times rather than offering it to a new client with a discount coupon;
- Manage seasonal labour requirements properly: You should know how many staff you will need at different times;
- Extra equipment: Consider whether is better to buy or rent extra equipment;
- Working capital: Make sure your business has enough money to contract extra employees as well as buying extra raw materials. If you think you might need a business loan, talk to your business bank account manager in order to apply for the business loan before the high season kicks off;
- Save money: Save the business profits rather than cashing out the money. You might need this money to reinvest in the business;
- Overdraft: talk to your bank and make sure you have a business overdraft for emergencies;
- Understanding your business financial performance: You need to understand your business performance. If you have been trading for more than one year make a comparison with what happened in the previous year;
- Prepare a cash flow as often as you can: Make sure you understand your business ‘ins’ and ‘outs’ and keep a record of this at least on a monthly basis;
- Consider closing the business down during the year: In some specific cases, it is better to close the business down for a period of time when sales fall too much rather than keeping the business open;
- Don’t panic: Always keep your cool and be in control no matter whether sales increase or fall;
In case you have any questions or want to have a bespoke analysis of your business performance and possible strategies, give us a call and we will be more than happy to help: 0207 328 8338.