SCORE, Counselors to America’s Small Business

Knowing Your Competition

 

by David Broyles

SCORE Counselor

 

Regardless of the type business you are either planning on starting, or attempting to grow, it’s imperative that you make it your business to study your competition. This highly disregarded fundamental will have a direct affect on your profitability. Let’s look at how to determine the level of competition in a retail operation.

Your competition will have a huge affect on the location that you choose. A retail business will draw its revenue from potential customers in a general area. If you are sharing this potential revenue base with others in your same business, you wind up sharing potential customers with another business or several businesses. You will find it much easier, faster and profitable to build your business in areas where you are the only supplier to your market. To determine your competition, go to the phone book, Internet or other local sources and identify every competitor in the area. Once you determine the number of potential customers you will need to make your business profitable, assume they will need that same amount and plot your potential target market around each of your competitors. Make sure the areas you are considering contain the type of customers you will need to sell to, and secondly overlap as little, if any of your competitor’s market.

Having a market more or less to yourself will give you two important advantages in the beginning: more potential customers to sell to and the ability to sell at your chosen level of profit instead of price cutting to attract your competitor’s customers. That will come later as you begin to saturate your market and are looking for additional revenue.

Increasing your sales or commonly referred to as “market penetration” will require more knowledge about your competition. Not only will you have to know who your competition is through sources we have already discussed, but also now it’s imperative you know the following about each:

1. Estimated sales revenue

2. Selling prices

3. Estimated customer count

4. Level of customer service

5. Inventory levels

Determining this information may not be as difficult as you think.  Most businesses will try to turn their inventory approximately four times annually. It will be up to you to visit your competitor’s operation, and visually access their stocking levels. Assuming they pay the same price you do, make an educated assessment of their inventory level. Multiply that number by four, and once again by your current profit margin and you will have a reasonable estimate of their sales revenue. To determine selling prices, you and a friend could purchase products on different days to formulate competitive price levels. At the same time you are making your purchases, ask questions of the clerk, ask for hard to find inventory and check on special orders. These are the types of questions that will allow you to gauge customer service levels. Lastly, customer counts are exactly what it sounds like, you or someone you know counting the customers entering the store on multiple given days.

There is nothing as important to a successful business as knowing your competition. It is an extremely important key to your success.

 

 

 

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