What is the benefit of having an Annual Spending by Income Analysis in a business plan for a Full Service Restaurant?This Annual Spending by Income analysis gives the reader of the business plan as well as a small business owner like Jack Gordon a very clear idea as to the Income levels of the folks buying the products and services being sold by their industry. We feel that this analysis is critical since it gives the most direct information to busines owners about the income demographics of their potential customers. While annual spending by income actually covers the spending done by consumers in various income categories at a national level, the results can most certainly be extrapolated to any local target market like Westchester County.
In order to conduct the Annual Spending by Income category analysis we have categorized the annual income into the following 5 categories:
What if folks with the lowest 20% of Income are spending the most money on my products or service?
In the event your analysis shows that folks spending the most on the products and services of your industry happen to be folks with the lowest 20% income, then you are going to have to concentrate your marketing efforts on making sure that your message gets out to this particular market demographic. It is very important that you understand and appreciate that even though you may be looking to add new customers from different income brackets, your core customers should always be that demographic that is actually spending the most money on your products and services.
A simple example of this principle would be the contrast between a check cashing service and wealth management services. A check cashing business owner may want and wish that his clientele include upmarket middle class and higher income customers whose checks will probably be of much larger dollar value, but the stark reality of the check cashing business is that it tends to have customers who have income brackets that are not very high. On the other hand, if you are offering high end wealth management services then your target market will automatically have to be folks who have substantial savings and income that they need managed for them. Even if your services are equally needed by folks in the lower income brackets, your practise and business cannot sustain that target market and you will have to go after the target market that canactually provide you with the wealth that makes your own business profitable.
Of course once you have established a successful wealth management business, you may consider doing some pro bono work with many smaller non-for-profit institutions to assist lower income folks with their money management problems as well but it would be unrealistic for you to be able to build a book of business in wealth management having customers who don't have much wealth to manage!
What if the amount of spending done by my target demographic market has been changing over time?
One of the reasons that we insist that the Annual Spending by Income analysis cover a period of at least 10 years is that it gives the reader of the business plan as well as business owners like Jack Gordon a very good idea of what the spending patterns used to be 10 years ago and what they are today. Thus for example, if our analysis were to show the folks in the highest 20% of income used to spend a lot of money on the goods and services of Full Service Restaurant, and more recently they are not - it may indicate that there is a change in the tastes and buying patterns of that particular market demographic. A clear example of this change can be seen in the clothing and accessories marketplace - usually folks who are younger tend to have rapidly changing tastes. However as folks age, researchers and marketers have found, that their tastes tend to remain steady and they prefer to buy the same brands that they are used to.
This tends to become a fairly dependable market trend for small businesses who are in the retail segment of the market. However, if research and analysis were to show that older folks are no longer spending what they used to, it may indicate that there is a change in the tastes and preferences and / or the buying ability of the target market. Thus this change would be an indicator of further shifts in consumer buying patterns in the future.
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