An important part of planning for a tire or auto repair shop is projecting what sales will be in future months. There are a number of factors that come into play when compiling these numbers and information can come from a number of sources. The most reliable place to start is with sales history if it’s available. Then customer attrition rates, cost and price changes, future marketing plans, as well as economic factors should be included.
Incorporating historical data into the plan is the best starting point. Just using sales dollars by month for the previous year is a good start but segregating sales by labor, parts and tires is even better. Also, looking at the monthly number of repair orders processed, quantity of labor hours and number of tires sold are good indicators that can be used to forecast future sales.
Customer Attrition and Retention Rates
Customer attrition rate is a measurement of how many customers were lost during the previous period (usually a year). The customer retention rate is a measure of the percentage of customers that were active at the start of the period and had activity within the period. Customer attrition rates are an important part of sales forecasting. Every business loses customers. Knowing the rate at which they’re lost will indicate the rate at which they must be added to achieve any level of growth or to maintain status quo.
Cost and Price Changes
As costs increase so do prices. So planning for parts and labor cost increases will determine the need for price increases. So if parts suppliers will be instituting price increases causing the cost of parts to go up then corresponding sales prices will go up. The impact of these increases should be included in sales projections. If the cost of labor increases due to raises or cost of benefits then labor rates may be increased accordingly. This increase also should be factored into sales projections.
Marketing programs are generally directed at retaining customers, increasing business from existing customers and attracting new customers. An effective marketing program focused on customer retention will cause retention rates to go up and attrition rates to go down. So knowing the potential impact of these programs is an important part of developing sales projections. Marketing programs aimed at increasing sales to existing customers focus on increasing the number of visits and/or purchasing new services or higher priced services will also impact sales projections. The anticipated impact of these programs should be included in the sales projections. Finally, estimating the sales volume resulting from marketing programs focused on attracting new business should be included.
Various economic factors can contribute to future sales volume. At the broadest level, economic forecasts for growth in Gross Domestic Product (GDP) can be considered. Using the information for the entire US economy is readily available and can be used but if GDP growth for the local economy is available it will be much more accurate. Also growth projections that are industry specific are much more effective than general projections. Economic projections for the tire and auto repair business are sometimes available through industry associations. Also knowing specific local information such as new businesses opening up, existing businesses expanding or new housing that will result in population growth are important factors to consider. The objective is to obtain the best information available and assimilate it into the sales projections.
Developing the Projections
The process of developing the sales projections involves starting with historical sales data, making adjustments for customer attrition rates, applying increases in sales prices then factoring in the effects of marketing programs and economic conditions. The end result should be a reasonable projection of sales dollars for the upcoming year. Sales projections are an indispensable part of building a good business plan and their importance cannot be overstated.