Trend analysis in business decision-making and research looks at past sales data, customer behaviour and industry shifts so you can make informed decisions that propel your business forward. In this guide, we break down how trend analysis will improve your decision-making and research.
What is trend analysis?
Trend analysis is looking at past data to predict future trends. It's commonly used by businesses to see how key metrics have changed over time and predict what might happen next. This can help you plan better and make smarter decisions. For example, if you know a sales spike is coming up, you need to forecast demand and buy more safety stock without overextending yourself and running into cash flow problems.
Why is it important to analyse trends in business?
It's important to analyse trends in business to help you understand past performance and predict future events. Here are some of the ways it can benefit your business:
Optimise your business performance
You can optimise your business performance by doing more of what's worked well before. For example, if you're a clothes retailer tracking your inventory levels, you may notice that certain styles sell better in specific seasons. Forecasting demand in this way means you can stock more of those items ahead of time to meet demand. In MYOB, you can access a range of inventory reports to track business performance. Here's a sample stock-on-hand report:
Employ data-driven decision-making
By employing data-driven decision-making, you can make choices based on actual data rather than assumptions. It's all about facts, such as which products are more popular or which marketing campaigns are performing best.
For example, a restaurant could use sales data to determine which dishes are favourites and should be featured more prominently on the menu, leading to higher customer satisfaction and increased sales.
Identify and research market trends
Identifying and researching market trends helps you anticipate what customers may want next, so you can innovate or adjust before your competitors do. For instance, a tech company that identifies a growing interest in sustainable products might start developing eco-friendly gadgets.
Mitigate risks
Mitigate risks by identifying them before they become significant problems. For example, by tracking trends in customer feedback, a company might notice early signs of dissatisfaction with a product feature and can quickly address the issue to prevent wider financial risk and protect brand reputation.
Improve forecasting efforts
You can improve forecasting efforts by predicting future outcomes more accurately — critical for planning and resource allocation. For example, if a holiday season trend analysis shows a consistent increase in demand every year, a retailer can prepare by increasing inventory and staffing in advance. That means you can meet customer needs without overextending resources.
What are the different types of trends?
The different types of trends include uptrends, downtrends and horizontal trends:
Uptrends
An uptrend is when you see things going up — sales or website visits. This is a great sign that what you're doing is working well. For instance, if you notice more customers coming into your store each month, you're likely on an uptrend. However, metrics that go the other way, like shorter customer wait times, reduced carrying costs and fewer complaints are also considered uptrends as they're positive indicators of business growth.
Downtrends
A downtrend is the opposite — it's when figures like sales or customer numbers are falling. This might be a signal to rethink your strategies or investigate something not working in your business. For example, if fewer people are buying your top product, it could be a sign of a downtrend.
Horizontal trends
Horizontal trends happen when your business metrics are stable. This can be good if you’re at a point where things are going well, but it could also mean there are areas where you can push for growth.
Trend analysis techniques
Trend analysis techniques let you look at data over time to spot patterns, changes or trends, so you can make strategic decisions based on data, not hunches. The two techniques are visual and statistical analysis.
Visual analysis
Visual analysis involves creating charts, graphs or maps to illustrate how numbers have changed over time. It can be as simple as plotting your monthly sales on a graph. It's a straightforward way to spot trends quickly without needing complex mathematical calculations. In MYOB, display charts and graphs may be auto-generated and displayed on your dashboard, as shown:
Statistical analysis
Statistical analysis uses mathematical formulas to delve deeper into your data and confirm what you see in your visual analysis. It can help you understand that sales are increasing and at what rate, so you can predict future levels. This might involve using software or a calculator to crunch numbers for a clearer picture of your business trends over longer periods.
For example, regression analysis is an important financial analysis used to understand the relationship between variables and predict future trends based on historical data. Moving averages smooth out data series to identify trends by calculating the average of a data set over specific intervals, making it easier to see patterns over time.
How to apply trend analysis techniques in business
You can apply trend analysis techniques in business by systematically going through these six steps:
Identify your goals and metrics to measure
To identify your goals and what metrics to measure, start by defining what you want from the analysis. Is it to increase sales revenue, better manage the customer experience or reduce overhead costs, for example? Then, decide which metrics will show what you need to measure as you progress toward these goals.
Gather all relevant data
Gather all the relevant data related to the metrics you're tracking. This might include sales records, website traffic statistics or customer surveys. Ensure the data is complete and accurate for reliable results from your analysis.
Select an analysis technique
Select an analysis technique. For straightforward trend-spotting, visual analysis like charts and graphs might be enough. For more complex predictions, you might need statistical analysis methods like regression analysis or moving averages.
Conduct an analysis of the collected data
Conduct an analysis of your collected data, by plotting data points or using statistical software for a deeper dive.
Analyse and interpret trends
Analyse and interpret trends to determine what these mean for your business. For example, a consistent upward trend in sales could indicate effective marketing strategies, while a downward trend might suggest areas needing improvement.
Make informed decisions based on results
Making informed decisions based on the results of your analysis could help drive your business forward. This might involve investing more in successful activities, rostering staff more effectively, adjusting tactics in underperforming areas or planning for seasonal demand fluctuations.
Trend analysis FAQs
What are the different methods of trend analysis?
The different methods of trend analysis include:
Visual analysis: graphs and charts to visually discern trends
Statistical analysis: statistical methods like moving averages, regression analysis or exponential smoothing to delve into complex data patterns
Digital analysis: software tools to analyse extensive datasets, often in real-time, to detect trends in digital spaces such as web traffic or online sales
What are the best ways to identify trends in data?
The best ways to identify trends in data start with these four steps:
Quality data collection: ensure your data is accurate, complete and relevant.
Appropriate tools: use tools that match your data type and analysis needs, such as data visualisation software for simple trends or more sophisticated statistical tools for detailed analysis.
Regular review: continuously monitor and analyse your data to identify trends as they emerge.
Comparative analysis: compare your data against industry benchmarks or historical data to identify significant trends.
What is the difference between trend analysis and forecasting?
The difference between trend analysis and forecasting is that they're used for different purposes. Trend analysis focuses on identifying the direction and patterns in past data to understand what's happened over time. It's descriptive and used to identify upward, downward or steady trends in data.
Forecasting, on the other hand, uses the patterns identified by trend analysis to make predictions about future events or behaviours. It looks forward to help you make informed predictions based on past data trends.
Data to the rescue
From figuring out your best-selling products to fixing small issues before they get big, trend analysis uses the past to shape the future of your business. MYOB accounting software helps by giving you the tools to easily track your sales, expenses and profit, turning all that data into clear insights. With these insights, you can spot trends, make smart decisions quickly and stay one step ahead.
Ready to get started? Sign up for MYOB and see the difference data-driven decisions can make for your business.
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