You’re sat in your annual directors meeting thinking how am I going to add £1million revenue in a year when your best sales guy has just left, a new company has entered the market and you’re putting prices up this year.
Worry not as it’s likely you’ve not identified your gap correctly. The term ‘gap’ is used throughout strategy meetings, gap in the market, gap research, performance gap and more.
The gap being explored today is related to growth, distinguishing what lies between your state now and what varying factors there are between you and your goal.
A gap analysis is the comparison of actual performance with potential or desired performance; that’s the ‘current state’ and ‘desired future state’.
On the surface the gap can be seen as the amount you want to grow by, for example if your current turnover is £5million a year and you want to grow by 20% to achieve a turnover of £6 million next year, you’d think the gap was £1million.
However this is incorrect, we will explore a number of varying factors that can impact the size of your gap, making it easier to plan ahead for a more precise goal.
Understanding The Gap
Included in this analysis is anything and everything else that can impact the gap. For instance you could be putting in place a 5% price increase and predict volumes to stay the same, this would therefore impact the gap as you’re contributing more revenue.
You may be taking on a new sales representative that’s set to generate £350,000 for the business that year. Again this contributes to your gap, in this case making it smaller.
Equally if you’ve just lost a sales person and you’re not replacing them, this in turn effects your gap as it’s a change from the previous year.
Your current competitors position could also influence your gap, for example a new company on the market that’s stealing market share is accounting for a proportion of the business you would have otherwise won.
It could be that a company has gone bust, therefore more of the market is up for grabs.
Specifically in the building materials sector it’s easier to forecast sales as installers and specifiers as they know the exact time the product or service will be needed.
Part of measuring and identifying your gap is ensuring your sales team has a robust sales pipeline.
Some questions to consider and ask yourself are:
- Has your sales pipeline grown year on year?
- Have you quoted more?
- Have you maintained your conversion rate or improved it?
- Is a competitor making serious movement within the market and stealing business?
- Has a competitor gone bust?
All these factors need to be taken into consideration before you measure your gap.
Calculating The Gap
Part of identifying the gap is using real data from your company to get the best outcome, this will then help you strategise and plan how to fill the gap.
It’s important to factor in any changes you’re making to the company or team that directly affect revenue. This way it’s accounted for in your gap analysis and you can then plan how you are going to increase revenue by the correct gap amount.
Let’s take the previous examples to help demonstrate, a 5% price increase with volumes remaining the same would result in an additional £250,000 revenue and a new sales rep is set to generate £350,000.
Now you can see that the gap is in fact £400,000, not as originally expected £1million.
Benefits Of Gap Analysis
Correctly calculating and assessing your gap analysis can help understand and prioritise business needs by identifying any deficiencies or shortcomings that need to be overcome.
Once gaps have been uncovered, it becomes easier to quantify them and identify work effort that will be required to address them. Then you can prioritise them so that the greatest gaps can be tackled first.
A gap analysis can also give decision makers a comprehensive overview of the entire company, allowing them to determine whether the organisation has the resources to meet their mission, goals and objectives.
It also helps the business focus its efforts and make informed decisions. Especially higher up in a company it can be hard to justify why you want to do something, by creating a gap analysis you can clearly see where to allocate more time, money or staff.
Having realistic ability to reach identified strategic goals and targets puts you, your team and your organisation at an advantage. Inevitably leading onto better projects, enhanced reputations, more business and higher profits.
To conclude, identifying your gap should be a vital part of your annual strategy meeting.
It helps identify the areas you need to focus more attention on and it also outlines the changes in the industry. Is your gap similar to last year, are new companies entering or leaving the market?
It also helps review the revenue the sales team generate and how introducing/getting rid of staff can affect your overall goals.
If you need help with strategy and planning for your building products company then talk to Insynth; offering consultancy sessions with 30 years experience in the building sector that's helped companies grow smarter.
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