Trend analysis for business improvement

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Trend analysis for business improvement

Choosing trends and results to analyse
Developing a trend analysis system
Analysing trends to improve business

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Trend analysis is the process of comparing business data over time to identify any consistent
results or trends. You can then develop a strategy to respond to these trends in line with your
business goals.
Trend analysis helps you understand how your business has performed and predict where
current business operations and practices will take you. Done well, it will give you ideas
about how you might change things to move your business in the right direction.
You can use trend analysis to help improve your business by:

identifying areas where your business is performing well so you can duplicate success
identifying areas where your business is underperforming
providing evidence to inform your decision making.

This guide explains how you can use historical data to analyse trends and improve your
business.
Factors that contribute to your overall success - often called key performance indicators
(KPIs) - make a good starting point for regular trend analysis.

Reviewing key performance indicators (KPIs)

When choosing which KPIs to track and review for trends, look for factors that drive sales
figures, costs and cash flow.
For example, when reviewing sales, monitor the figures that show what is happening in your
business, such as:

categories of products selling well

how priority products with the best margins and the best payment terms are selling
the performance of each sales person
how conversion rates (i.e. ratio of leads to sales) are changing.

Measuring financial trends

These financial trends have a direct impact on business performance and are worth measuring:

sales
cost of goods
overheads
cash flow
net profit.

Learn more about using financial ratios to assess your business performance.

Analysing other trends

Other factors impacting on overall business performance include:

speed of stock turnover

payment terms and debtor or creditor days
trading hours
display area or floor space
staff numbers
waste management costs.

By monitoring your business's performance over an extended period of time, you can
establish useful information on trends. You can then use this data to refine your business
decisions and strategies.

Stages of trend analysis

Set up an effective trend analysis system by:

preparing for analysis - determine what performance data or results you are going to
examine and compare
applying a threshold - define the level at which a variation is worth noting. For
example, a 10% increase or decrease in sales over a period of time should be
investigated for causes. Use your discretion as you know your business best
conducting cause analysis - investigate why the variation occurred so you can use
this information for future planning and decision making.

Use a management information system

To make sure your analysis is meaningful, put a record keeping system and process in place
to record accurate information. Communicate a set of procedures that both you and your staff
understand.
Make sure the business data is collected, recorded, reported and evaluated quickly and
efficiently by:

keeping accurate business records - including financial information, staff hours,

stock (in or out) and marketing campaigns
analysing trends at critical decision points - for example, potential cash flow issues,
staffing, peak sales periods and the success of marketing campaigns

collecting information on a regular basis - with the frequency determined by the

type of data you are collecting
maintaining data integrity - by agreeing on definitions of what is included or
excluded from a particular count; for example, including sales of new season stock
and not old season stock for the duration of a marketing campaign
storing information in a useable format - for example, using spreadsheets or
accounting software
encouraging team participation - by promoting what you are doing to the people
who collect and record your data.

Benchmarking your business

Benchmarking is a way of measuring your performance against similar-sized businesses in
your industry. You can benchmark almost all the areas of your business that are important to
your success.

Limitations of trend analysis

Keep in mind there are situations when trend analysis is of limited use. Examples include:

if conditions change dramatically, historical data may not apply

comparing data on an annual basis may not always accurately represent business
performance, since other factors may influence results
data collected over an extended period of time does not allow adjustments for
inflation.

Spending time analysing your business results is valuable if the insights help you to improve
your business.
Genuine trend analysis will help reveal trends in your business's performance that aren't
necessarily obvious from day-to-day performance figures.
You can analyse your business performance for trends by:

doing financial calculations

looking at ratios
creating tables of information
graphing results over time.

Conducting useful trend analysis

Analysing one trend is rarely useful, but when trend information is combined with other
business observations and information, it can be a powerful tool for business decision-making.
Here is an example of staff turnover:
Staff turnover in 2011

First quarter 10%

Second quarter 14%
Third quarter 16%
Fourth quarter 8%

The information above indicates staff turnover has dropped recently - usually a good sign.
This doesn't tell you how it will impact on your business. To find out you need to analyse
other factors.
The graph below shows something more useful than the information above does on its own.
Staff turnover from 2009-11

In isolation, the information indicates a positive result. When compared to the graph, turnover
per quarter is significantly greater than in previous years.
There is an upward trend in staff turnover. This gives you a warning that staff turnover is
becoming a problem and you may need to take steps to alter the trend.