Seasonality is the idea that business volume ebbs and flows at different times. While landscapers and lawnmowers know that their busy season coincides with summer, seasonality is affected by a lot more than just the weather. Retailers’ busy season coincides with holiday shopping (of course), wedding season is in the summer, and so on.
Check out http://www.google.com/trends to view the seasonality of any keyword search.
It’s easy to figure out the seasonality when it coincides with a certain month of the year; even if the link is not obvious, (for example, Pablo Picasso is a hot topic in February/March, but unpopular in July and December). But what about businesses that don’t experience seasonality within a calendar year? It’s tougher to spot the busy and slow seasons when they may extend over a period of 2 or 3 years, and you don’t know WHEN the season starts and ends, nor the duration.
So how do you figure out what drives seasonality for a particular industry? Look for leading indicators.
Leading indicators can tell you what is about to come. Such as in the weather - right before a major hurricane, it usually gets pretty windy outside. One of the most interesting is the “Lipstick Indicator” which Estee Lauder spotted. During recessions and uncertain times, they noticed that lipstick sales went up. “Why?” you ask? Probably because women want something luxurious to feel pampered, but can’t afford expensive items anymore, so they settle for lipstick. Amazingly, this indicator has been quite reliable over the years. In fact, right after the terrorist attacks on September 11, 2001, lipstick sales doubled.
Sometimes leading indicators come right before an event, sometimes far in advance of an event, but once you spot them they can be very valuable, because it warns you of what is coming. Leading indicators can signal either to hire more help to prepare for a busy season, or cut back on inventory heading into a slow one. Your goal as a business owner is to smooth out the peaks and troughs of cash flow and business volume. Looking for the indicators of your seasonality can help you predict and adjust your business plan quickly to compensate.
“Supercrunchers” is a great book that discusses how to crunch numbers on any problem, to figure out the driving forces behind events. I definitely recommend everyone to read it, if you haven’t. The idea behind it is that you can use your own past sales data to crunch numbers to discover hidden patterns that you haven’t noticed. Regressions are a powerful tool in crunching these numbers, so find a strong statistician to help you run through the data.
And of course, remember that in order to HAVE peaks, there have to be troughs. Plan for them, and when the slow times come, don’t panic. Use some of the surplus you enjoyed in the busy season to get you through the slow season. And watch for those leading indicators to help you know when business will increase again so you can gear up for it.
