🔍 Business Analysis Techniques: The Detective’s Toolkit
Imagine you’re a detective solving mysteries about a lemonade stand business. Each technique is a different magnifying glass that helps you see what’s really happening!
🎯 The Big Picture
Think of your business like a garden. You need different tools to understand:
- Is it growing better than last year? (Year-over-Year)
- How much water have you used so far? (Running Totals)
- Which flowers take up the most space? (Percent of Total)
- Which are your best flowers? (Ranking & Top N)
- Why did something change? (Variance Analysis)
- How do you compare to other gardens? (Benchmark)
- What’s causing the problem? (Root Cause)
- What matters most? (Pareto)
📅 Year-over-Year Analysis
What Is It?
Comparing the same time period from different years. Like comparing this December to last December!
Simple Example
Your Lemonade Stand:
- December 2024: Sold 100 cups
- December 2023: Sold 80 cups
- Growth: 25% more! 🎉
The Formula
Growth % = (This Year - Last Year) / Last Year × 100
Why It Works
Comparing December to November doesn’t make sense. December is cold, November is warmer. But comparing December to December? Now that’s fair!
graph TD A["Dec 2023: 80 cups"] --> B["Dec 2024: 100 cups"] B --> C["Growth: +25%"] style C fill:#90EE90
Real Life
- Netflix compares subscribers this Q4 vs last Q4
- Schools compare test scores year-over-year
- Stores compare holiday sales to last year’s
📊 Running Totals and Cumulative
What Is It?
Adding up everything as you go. Like counting all your savings, not just today’s coins!
Simple Example
Weekly Lemonade Sales:
| Week | Weekly Sales | Running Total |
|---|---|---|
| 1 | 20 cups | 20 cups |
| 2 | 30 cups | 50 cups |
| 3 | 25 cups | 75 cups |
| 4 | 35 cups | 110 cups |
Why It Matters
You might have a slow week, but your running total shows you’re still on track for your monthly goal!
graph TD A["Week 1: 20"] --> B["Week 2: +30 = 50"] B --> C["Week 3: +25 = 75"] C --> D["Week 4: +35 = 110"] style D fill:#FFD700
Real Life
- Your bank shows your total balance (running total of deposits minus withdrawals)
- Sports teams track season wins
- YouTube channels track total subscribers
📈 Percent of Total
What Is It?
Finding out what slice of the pie each thing represents. If the whole pizza is 100%, how big is each slice?
Simple Example
Your Lemonade Flavors:
| Flavor | Cups Sold | % of Total |
|---|---|---|
| Classic | 50 | 50% |
| Strawberry | 30 | 30% |
| Mint | 20 | 20% |
| Total | 100 | 100% |
The Formula
Percent = (Part / Total) × 100
Why It’s Useful
Instead of saying “50 cups,” you can say “half our sales!” People understand percentages better.
graph TD A["Total: 100 cups"] --> B["Classic: 50%"] A --> C["Strawberry: 30%"] A --> D["Mint: 20%"]
Real Life
- “Marketing is 15% of our budget”
- “Mobile users are 70% of visitors”
- “Rent is 30% of my income”
🏆 Ranking and Top N Analysis
What Is It?
Putting things in order from best to worst, then focusing on the top performers!
Simple Example
Your Best Customers (Top 3):
| Rank | Customer | Cups Bought |
|---|---|---|
| 🥇 1 | Emma | 50 cups |
| 🥈 2 | Jake | 35 cups |
| 🥉 3 | Sofia | 28 cups |
Why Focus on Top N?
You can’t give everyone special attention. Focus on your Top 5 or Top 10 to make the biggest impact!
Real Life
- Spotify’s Top 50 songs
- Amazon’s Bestseller list
- Your phone’s most-used apps
- Netflix Top 10 in your country
Pro Tip
Top N by different measures:
- Top 5 by revenue
- Top 10 by quantity
- Top 3 by growth rate
🎯 Variance Analysis
What Is It?
Comparing what you PLANNED vs what ACTUALLY happened. The difference is called “variance.”
Simple Example
Monthly Plan vs Reality:
| Item | Planned | Actual | Variance |
|---|---|---|---|
| Sales | 100 | 120 | +20 ✅ |
| Costs | $50 | $60 | -$10 ❌ |
| Profit | $50 | $60 | +$10 ✅ |
The Types
- Favorable Variance: Better than planned! 🎉
- Unfavorable Variance: Worse than planned 😟
graph TD A["Plan: 100 cups"] --> B{Actual?} B -->|120 cups| C["+20 Favorable ✅"] B -->|80 cups| D["-20 Unfavorable ❌"]
Real Life
- “We planned to spend $1000 but spent $1200”
- “We expected 50 sign-ups but got 75!”
- Budget vs actual spending each month
📏 Benchmark Comparison
What Is It?
Comparing yourself to a standard or to others. Like checking if you’re taller than average!
Types of Benchmarks
1. Internal Benchmark Compare to your own past:
- “This month vs our best month ever”
2. External Benchmark Compare to others:
- “Our lemonade stand vs the competitor’s”
3. Industry Benchmark Compare to the average:
- “Average lemonade stand sells 80 cups. We sell 100!”
Simple Example
| Measure | You | Industry Avg | Status |
|---|---|---|---|
| Cups/Day | 25 | 20 | ⬆️ Above |
| Cost/Cup | $0.50 | $0.40 | ⬇️ Below |
| Customer Rating | 4.5 | 4.2 | ⬆️ Above |
Real Life
- Schools compare to state averages
- Hospitals compare patient wait times
- Companies compare profit margins
🔎 Root Cause Analysis
What Is It?
Asking “WHY?” over and over until you find the real problem. Like peeling an onion layer by layer!
The 5 Whys Technique
Problem: Sales dropped 30%
- Why? → Fewer customers came
- Why? → They went to the new stand
- Why? → The new stand has lower prices
- Why? → They buy lemons in bulk
- Why? → They have more starting money
Root Cause: We need more starting capital for bulk buying!
graph TD A["Sales Dropped"] --> B["Fewer Customers"] B --> C["New Competitor"] C --> D["Lower Prices"] D --> E["Bulk Buying"] E --> F["💡 Root Cause: Need Capital"] style F fill:#FFD700
Why It Matters
Fixing symptoms doesn’t help! If you just lower prices without bulk buying, you’ll lose money.
Real Life
- Factory investigates why machines break
- Hospital investigates patient complaints
- Tech team investigates system crashes
📊 Pareto Analysis
What Is It?
The 80/20 rule! Usually, 80% of results come from 20% of causes.
The Lemonade Example
Customer Analysis:
| Customers | % of Customers | % of Revenue |
|---|---|---|
| Top 20% | 20% | 78% |
| Other 80% | 80% | 22% |
Just 20% of customers bring almost 80% of your money!
How To Use It
- List all items
- Sort by impact (biggest first)
- Calculate cumulative %
- Find where you hit 80%
- Focus your energy there!
graph TD A["All Problems"] --> B["Sort by Impact"] B --> C["Find Top 20%"] C --> D["Focus Here!"] D --> E["Solve 80% of Issues"] style E fill:#90EE90
Visual: Pareto Chart
A bar chart sorted from tallest to shortest, with a line showing cumulative percentage. When the line hits 80%, that’s your focus zone!
Real Life
- 20% of bugs cause 80% of crashes
- 20% of products bring 80% of sales
- 20% of employees do 80% of work
- 20% of features get 80% of use
🎓 Putting It All Together
Imagine running your lemonade stand for a full year:
- Year-over-Year: “We grew 25% from last summer!”
- Running Total: “We’ve sold 5,000 cups total this year”
- Percent of Total: “Strawberry is 35% of sales now”
- Top N: “Emma, Jake, and Sofia are our top 3 loyal customers”
- Variance: “We planned 400 cups in July, sold 450!”
- Benchmark: “We outsell the other stand by 30%”
- Root Cause: “Sales dipped because of the heat wave”
- Pareto: “Focus on strawberry and classic - they’re 80% of sales”
🚀 Quick Reference
| Technique | Question It Answers |
|---|---|
| Year-over-Year | How do we compare to the same time last year? |
| Running Total | What’s our total so far? |
| Percent of Total | What portion is each part? |
| Ranking/Top N | Who or what are our best performers? |
| Variance | Did we hit our plan? |
| Benchmark | How do we compare to others? |
| Root Cause | What’s the real reason this happened? |
| Pareto | Where should we focus for maximum impact? |
Now you have the complete detective toolkit! Each technique helps you see your business from a different angle. Use them together, and no mystery will remain unsolved! 🔍✨