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Home Business Online Location: Case Studies 1 gaining control--> Home Business OnlineCase Study 1: Gaining Control Sandra Wallings started her home business selling cosmetics for Avon. Over the first two years she grew a reliable customer base in a sixty-mile radius of her home. She followed the traditional marketing and sales methods which rely heavily on word of mouth and holding parties. While she had increased her income from a few hundred dollars a month on average in her first year to nearly eight hundred dollars a month in her second year she was anxious for more. She looked into various sales opportunities including Watkins and many MLM businesses. None of them offered the kind of money she was hoping to make. She had set her goal at three thousand dollars a month. She decided that her only potential market would have to be national to earn that amount. After looking over her current customer base and analyzing what more could she offer she settled on designer gift baskets. It was not that difficult of a business to start up as far as investment and learning curve. She already had several years of experience work as a florist and had several contacts for supplies. It was also something she really enjoyed. Creating and designing was soothing and at the same time invigorating for her creative talents and partly what she enjoyed about selling cosmetics. After making the decision to open a designer gift basket business she then discussed with her husband the advantages and costs. They decided to use her income from Avon to finance the startup and purchase advertising. This would cause them to tighten up on their leisure expenses but they both agreed the chance for increasing the business income was worth the change in lifestyle. Sandra called on her friends who had experience with business startups, financing, marketing and accounting. The overwhelming response from them was positive support and the consistent advice to put together a business plan and marketing plan before investing in the operations. She hired a business-planning consultant and over the next few weeks they worked many hours on the details of her new business venture. After the business plan was completed she had a very organized structure with which to operate her new business. All of her suppliers, resources, and the range of customers, services, and guidelines for product quality and shipping were all well detailed and understood. She took the same approach with the marketing plan in hiring a consultant working together for several hours over the next few weeks producing the marketing plan. She now understood how she would brand her designer gift baskets and create her place in the market. Her step by step approach was well documented and budgeted to take her from startup to full market penetration. Sandra looked over her plans one last time and she and her husband discussed them constantly through the development and now one last time before making the final decision to go forward or stop the process cold. A year and several months later Sandra was well on her way to making the income goal she had set. Her websites were making 72% of her sales and the remaining 28% were from local contacts and marketing efforts. All was well but now she was struggling to push her bottom line upward. It had been a pretty steady increase month by month until she reached her 14th month. She was watching her income dipping one week and rising back up the next. It was more out of control than that and was becoming impossible to determine the cause of the fluctuations. She wondered if she had already reached her maximum market potential, but her marketing plan had identified four to five times more than her current levels. There had been a few months previous where she had exceeded her income goal, but that fact only made the current dilemma more confusing. Why had she lost control of her businesses growth? Her marketing plan was followed to the letter and had been producing fantastic results to now. Was it time to redesign the marketing strategy? Why were some weeks producing sales on target or ahead and other weeks falling short? Why had a few weeks produced far more sales than the average? The questions were producing questions upon questions and no answers seemed complete. Sandra had been keeping good records and her data collection was meticulous. In addition to sales records she tracked the number telephone inquiries per day, total number of visits to websites, email inquiries, requests for brochures, promotional and advertising responses, and the number of products shipped. She looked at these numbers everyday to get a feel for how well her business was growing and performing. With the current confusion she spent even more time looking over these figures hoping to see the answer somewhere in the numbers. Taking a look at the last six months of data and putting the figures into graphs produced the following results. See The Data Charts – Click Here Linear trend lines are added to each chart as a means to measure the six-month trend. Of certain alarm is the downward trend of total sales, web traffic and phone calls. Total shipped baskets is also trending down and could be an indicator of customer satisfaction which would then lead to repeat business. However, in this case we are struggling to increase revenue through building a larger customer base more so than to concentrate on repeat customers. A significant increase can be seen in requests for brochures and relatively flat trends are seen in email, and sales from promos. Further investigation of the records revealed that her income growth in the first year paralleled website traffic, phone calls, and sales from promos. It is also these same three indicators that are currently decline and stagnate. The advertising Sandra was using concentrated on two responses from the customer: Call to place an order, or visit the website to see the designs and place an order online. Her business accepted payments from customers through any of three options, telephone orders using the toll free customer service line, website orders using the merchant account Internet gateway, and fax orders through a free fax service provider. Of the three options she has only received one fax order and the other two options are reasonably equal. Since the advertising pushed the toll free orders and the website orders, it is logical that faxed orders are non-existent and therefore irrelevant. What is relevant was the paralleled growth rates. We began to research her advertising methods. What were the methods, what are the sources used, what do the ads consist of, etc. The advertising was a random use of radio, magazine, and many online sources of paid advertising including banner ads, Google ads, and Lycos ads. There was no consistent or patterned use of the advertising source. There are also many different ad designs and content that have been used. Ranging from offering special prices and special events to situational themes for why gift baskets are the best gift. Sandra has used national radio ads and local radio stations. Magazine ads varied wide over the type of markets each magazine appeals to include hunting magazines, Photography, Golf, and many Craft magazines. The marketing plan had designed many marketing ideas and many markets to penetrate but it fell short on a method to identify which of the test markets were producing sales. Sandra had accepted the idea that advertising at random and through vast markets was the key to her market penetration. The consistency of her brand was in place, but the ability to track which ad and ad source was producing had been overlooked. The best way to review Sandra’s data in effort to reveal what ad and source worked to produce the best sales was to combine relative data into a P-Chart. A P-Chart is a statistical method that relates two or more sources of data into a percentage. Statistically predictable ranges based on the entire set of data bound the chart. The boundaries are known as the upper limit and the lower limit. All data points are calculated and then plotted on the graph with the upper and lower control limits. Any data point that falls above the upper limit or below the lower limit are called out of control data points. Those points are not predictable, they are bizarre occurrences that indicate bizarre circumstances at play. There are half of a dozen other statistical formulas that can be used on the data points that are inside the control limits to reveal unusual circumstances. To analyze Sandra’s business over the previous year we only use the website traffic and phone call data combined in comparison to sales to establish the P value. The sales from promo data are not used because it indicates a portion of total sales and not potential customers. The initial P-Chart was established and the statistical interpretation was provided to Sandra. Looking at the resulting P-Chart there are five data points that are out of control. In this case out of control is a good thing. Sandra can look back to weeks 4, 11, 13, 19, and 31 to see what advertising was running at those times. She can also check those weeks with very low to zero P-values and verify which advertising has no positive value to her business. Going forward with the P-Chart as her business continues to grow and she uses other sources of advertising and ad materials she will quickly identify the value added. Over the short run she will be able to use the good methods more frequently and stop using those which are worthless. Her advertising dollars will have a greater return and with her income growing she can put even more money into the advertising budget. In the long term the P-Chart will indicate when she has had a significant shift in average sales as well as a shift in control limits. These events will signal to her that she has reached milestones in growth and perhaps a signal to boost the advertising budget again. In this way she will have a solid advertising expense that will only grow when the business indicates it can support the increase. With this information in mind, Sandra quickly ran advertising as identified by the five out of control points. She also ended advertising with six different sources that were consistently producing poorly. She then sent me the data for the twelve weeks that followed so we could verify the results. Sandra was happy to see a significant increase in sales. Her phone calls and web site traffic were showing steady growth once again. The P-Chart verifies that the increased activity and sales are statistically significant improvements. I was able to calculate the real impact for her business and reestablish a new average and control limits based on the twelve-week changes. Sandra can now safely add more money to her advertising budget and begin to experiment with new sources and advertising materials. With a keen eye on her P-Chart she will easily identify a good source and a poor source. She is now back on track to reaching and likely exceeding her income goal. Case Study 1 Case Study 2 Case Study 3 Case Study 4 Case Study 5 |
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