Declining Sales in Business: How to Identify the Real Problem

Your business was growing.

Sales were increasing. Customers were coming in. Transactions were strong, and things seemed to be moving in the right direction.

Then something changed.

Maybe you didn't notice it right away.

Sales started slowing down. You started seeing fewer transactions. Some of your regular customers weren't coming in as often.

Now you're looking at your numbers, trying to figure out what happened.

When you start seeing declining sales in your business, one of your first thoughts may be:

We need more customers.

Maybe you do.

But before you spend more money trying to bring new customers through the door, I think there's another question you should ask:

What happened to the customers you already had?

To identify the real problem, you have to look beyond the sales number and start connecting the numbers to what is happening inside your business.

Declining Sales in Business: Start With the Numbers

Your financial reports can show you that sales are declining.

But don't stop there.

Let's say your business had $150,000 in sales last year during a certain period. This year, during that same period, sales were $128,000.

You know sales dropped by $22,000.

But that doesn't tell you why.

That's when I would start digging a little deeper.

Did fewer customers make purchases?

Are customers spending less when they visit?

Did your prices change?

Are customers buying different products?

Are customers coming in once but not returning?

The sales number tells you what happened.

Now you need to start figuring out why it happened.

Look at Your Transactions

One of the first things I would look at is transactions.

Here's an example.

Last year, your business had:

10,000 transactions with an average sale of $15.

That's $150,000 in sales.

Now your business has:

8,000 transactions with an average sale of $16.

That's $128,000 in sales.

At first, you might look at that $16 average sale and think that's good. The customers who are buying are actually spending more.

But look at what else happened.

You lost 2,000 transactions.

Now I wouldn't just be asking why sales are down.

I'd be asking:

Why are fewer people buying from us?

That's a completely different conversation.

And that is why looking beyond the total sales number matters.

When Did Things Start Changing?

Once you see a decline, go back and look at when it started.

Don't only compare this month to last month.

Look at several months.

Were transactions slowly declining?

Did sales suddenly drop?

When did regular customers start coming less often?

Then ask yourself:

What changed around that time?

Did you raise prices?

Did your operating hours change?

Did you lose experienced employees?

Did employee turnover increase?

Did you change a product, service, supplier, or process?

Did a new competitor open nearby?

Did something change about the experience customers were receiving?

I'm not saying that if two things happened at the same time, one automatically caused the other.

But now you have somewhere to start looking.

Sometimes a struggling business doesn't have one big problem.

It may be several smaller things that have been happening for months.

What Happened to the Customers You Already Had?

We talk a lot about getting new customers.

And yes, every business needs new customers.

But I think we also need to talk about keeping the ones we already have.

Imagine a restaurant with customers who used to come in three times a week.

Now they're coming once a week.

Another customer who came every week is now coming once a month.

And another one stopped coming altogether.

The restaurant still has customers, so at first everything may look okay.

But slowly, transactions start falling.

Then sales start falling.

The same thing can happen in retail or other businesses.

A customer who used to shop with you regularly may start shopping somewhere else.

That doesn't necessarily mean they stopped needing what you sell.

It may mean something changed about why they choose where to spend their money.

Before spending more money trying to replace those customers, I would want to know why we're losing them.

Look at What's Happening Inside Your Business

Sometimes the problem isn't outside the business.

Sometimes you need to look inside.

What has changed?

Maybe you're short-staffed more often.

Maybe employee turnover is high.

Maybe customers are waiting longer.

Maybe products aren't available as consistently as they used to be.

Maybe the service isn't what it was when the business was growing.

Maybe prices went up, but the customer's experience didn't improve with the price.

Or maybe your business hasn't changed much at all, and you're dealing with new competition or changes in your market.

That's why I don't think you should assume you know the answer just because sales are down.

Look at what's actually happening.

Don't Forget What You Were Doing Right

When a business starts struggling, it's easy to focus on everything that's going wrong.

But I would also ask:

What were we doing when the business was growing?

Think about it.

What did customers like about your business?

What products were selling?

What did your staffing look like?

How was your customer service?

Did you have experienced employees who knew your customers?

Were customers visiting more often?

What was different then compared with now?

Sometimes growth causes businesses to change.

You get busier.

You hire more people.

Processes change.

Prices change.

Management changes.

And sometimes, without realizing it, you can lose some of the things customers liked about the business in the first place.

So don't only ask what's going wrong.

Ask:

What were we doing right that we need to protect or bring back?

Use Your Financial Reports to Help Identify the Real Problem

Your financial reports aren't going to answer every question.

But they can give you clues.

Your P&L can show you that sales are declining.

Your transaction reports can show you whether fewer purchases are being made.

Your average sale can show you whether the customers who are buying are spending more or less.

Then you start connecting those numbers to what's happening in your business.

Ask:

When did this change?

What changed around that time?

Are fewer customers coming in?

Are customers coming back?

Are they spending differently?

Has something changed about the experience we're giving them?

Your numbers may not give you the final answer.

But they can help you ask better questions.

Read the Business

When you see declining sales in your business, it's easy to panic.

You may want to cut expenses.

Run a promotion.

Spend more on advertising.

Lower prices.

Maybe one of those things will eventually be part of the solution.

But before you start trying to fix the problem, make sure you understand what problem you're actually trying to fix.

If transactions are declining, find out why.

If customers aren't coming back, find out why.

If sales started declining six months ago, look at what changed six months ago.

Your numbers may not tell you exactly why your business is struggling.

But they can tell you where to start looking.

Sometimes the answer isn't finding more customers.

Sometimes it's understanding what happened to the customers you already worked hard to earn.

And here's another question worth asking:

Have you listened to what those customers are telling you?

That's something we're going to talk about next in Read the Business.

Understanding Your Numbers Is Only the Beginning

At Clorista Bookkeeping Services, I believe bookkeeping should do more than tell you what happened last month.

Your numbers can help you understand what's happening in your business, ask better questions, and make better decisions.

Read the Business is about looking past the numbers and understanding the business story behind them.

Interested in working with Clorista Bookkeeping Services?

I'm currently building my client list. Join to stay connected and be among the first to know when bookkeeping services become available.

Join Client List