Q: I'm currently creating a business plan for a start-up bridal salon. Although I have a solid grasp on my business idea, I'm having a lot of difficulty finding financial information on my competitors-there are no trade publications. How can I estimate sales without knowing what my competitors are doing?
A: You've reached the point where entrepreneurship hits the streets. Start by reading "Making Projections" and "Projecting Income" to learn how to project revenues using your business model and exploring different scenarios. But before your business model can give you good projections, you must get some good numbers to pump through it. Let's say your business model assumes you'll get people mainly through foot traffic. If 50 people walk into your store each day and make an average purchase of $20, that's $1,000 per day. But are those numbers realistic? Probably not. But don't start the business before finding out if it will work-first, get realistic numbers from your competitors.
The competition is unlikely to hand you the numbers you want. So get out in the field and start collecting. This is where entrepreneurship gets down and dirty. Camp out in front of competing stores for a day or two and count how many people enter the store. How many leave carrying a bag, having made a purchase? Ideally, you want to stake out a competitor that gets foot traffic similar to what you experience at your location.
Your next step? Walk inside. Listen to people shop. How many are buying big-ticket items vs. less expensive items? If you can get a sense of the average purchase size, that will give you a realistic number for your financials.
Also notice where your competition advertises. If they have a 1/4-page ad in Bridal Weekly, call the magazine and find out how much a 1/4-page ad costs. Then, visit the store to get a sense for how much traffic is everyday foot traffic, compared to how much is "destination" traffic from the ad, the Yellow Pages or another marketing program.
Your goal is to find out how much pull they're exerting on the market. You know your own advertising and marketing plans, so you can guess how much pull your marketing program will bring into the store. Remember to allow for ramp-up time. They may be getting lots of customers from a single ad, but that may be because they've advertised and had word-of-mouth and a physical presence for many years. You could start with an identical ad campaign, but it would probably still take time to build a similar clientele.
If you're planning to do some serious scouting, capture everything you can about how they generate revenues. Things to look out for include:
- Average purchase size.
- Number of customers (and how that changes according to day of week, season and so on).
- Percentage of customers who are repeat vs. one-time customers.
- Profitability of what people buy. (You'll have to estimate this, but if they're buying popcorn at a movie, you know it's higher-profit than chicken fingers, even if you don't know exactly how much.)
- Why people buy at your competitor's store. (Is it price? Convenience? Atmosphere?)
Then start tweaking. Do you have ideas for boosting the average purchase prices of items? Factor that into your equations. Do you plan to go after more or different business than your competitors? If so, then change your customer numbers to match. You're not after an exact prediction; you're after a contrast between you and your competitors.
As long as you're checking out the competition, also estimate total supply and demand in your area. If your town has 1,000 people, and your competitor is pulling in 800 customers per year, you may capture half that market (giving you each 400 customers). Not good--400 customers isn't enough to sustain either of you, and you'll both go out of business.
If your industry has lots of competition, make sure you believe the market demand is there. Otherwise, your business may simply bring overcapacity, lower prices and a depression to the whole industry in your area. Case in point: Movie exhibitors began building 20-plexes frantically in the late '90s. While each theater looked like a good idea, they weren't paying attention to competitors. The result? Too many movie seats without enough move attendance to match. Many theaters went under, and even the survivors had trouble making money.
Supply and demand can also work in your favor. If you own one of two bridal shops in a town that's growing by 30 percent per year as unmarried 20-somethings move in, there is probably ample room for many new bridal shops.
Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.