Understand customer mindset to respond to buying patterns
Volatile demand
Responding to fluctuating buying patterns all comes down to understanding customer mindset.
As the government restrictions to protect our health eventually ease, people will adapt to the changes at different speeds.
Those variations will, in turn, have big impacts on sales for small businesses.
For those supplying household basics, spikes of panic buying are still happening at times – and threaten to reemerge whenever lockdown restrictions return. In contrast, if you’re a small business owner helping people plan their international travel, things are likely to be quiet for some time to come.
When customers purchase can fluctuate and change at short notice, because planning horizons have shifted – all the more so while the risk of the crisis escalating again remains. Where once they might have scheduled a car service, beauty treatment or a B&B room weeks in advance, they now book only a few days out, due to shifting restrictions. For some businesses, like restaurants, it’s exactly the opposite, with limited spots being snapped up well in advance. It’s all part of the volatility of the times.
Experiencing recovery in different ways
As the recovery gathers pace, economic progress won’t always seem orderly, predictable or linear. In some small towns, for example, it may feel like not much has changed since before the pandemic. In cities, however, it may take longer for a new rhythm to become apparent, and this might change the forecasts you make for sales in different parts of the country.
On the international front, some countries aren’t likely to pass out of the pandemic crisis phase at the same rate as Australia, so supply shortages of foreign-sourced materials may continue even if our nation is thriving again.
Making your customers feel safe
You may notice in your own local community that people of different age groups choose to socially distance for longer than others. Older people, for example, may remain more cautious about gathering in large groups. If they’re a big part of your customer base, you might need to think about how to reach out to them.
Ultimately, we may hope that instances of panic buying and hoarding will disappear, but we can expect some levels of volatile and patchy demand to continue for small businesses for a while, as communities recover at different speeds.
That’s why it’s important to stay on top of what your customers need and how they’re changing their spending. Coping with volatility is much easier if you have up-to-date data and insights, and keep a close eye on changes you can see in your customers’ buying patterns.
Consider your customer
- How will you monitor the volatility in your customer buying patterns and get access to more accurate demand data?
- How can you create flexibility in your booking procedures to match the shorter horizons in customer forward planning?
- If customer demand dips, can you try bundling some of your products with other complementary offerings, or find new referral partners and offer commissions?
Consider your business
- How can you best respond to rapid rises in customer demand?
- If customer demand falls, will you consider clearing stock, pivoting to new product lines, or diversifying your range to spread your risk?
- If your production needs to fluctuate, could you reduce some fixed costs and make them variable?
Tips
- Monitor customer demand changes frequently.
- Minimise new overheads and examine ways to convert fixed costs to variable costs.
- Develop plans to scale production up or down in quicker ways than you used to.
- Shorten lead times for product development and production where you can.
- Streamline order fulfilment in advance of customer demand surges to help get products out the door when sales shoot up.
Getting cash flow savvy
Cash flow management can seem somewhat elusive, and even impossible to forecast at the moment. But, with help from your bookkeeper, you need to make your best assumptions to work out on a weekly basis over the coming two or three months, how much cash is coming in, and how much cash will need to be paid out.
The Government’s stimulus has focused on assisting businesses with cash flow challenges get through the toughest times. But when JobKeeper and other stimuli end your business may require additional finance or significant changes to accommodate a reduced turnover and become cash flow positive. When you know you’ve got enough cash to keep going, you can then focus on longer-term plans.
Stay on top of your numbers with Xero’s short-term cash flow tool
If you’re using online accounting software like Xero, you’ll have access to features designed to provide the visibility and insights you need to manage your cash flow. Xero’s short- term cash flow tool visually projects your bank balance 30 days into the future, showing you the impact of existing bills and invoices if they’re paid on time. This not only provides clarity, but helps you work out which invoices you should follow up, and see how your cash flow will change if you pay a bill next week rather than this week.
