Why is it that some companies always seem to be on the ball, one-step ahead of competitors and always able to anticipate the needs of customers? Why is it that some companies just have a knack for winning business, while their competitors seem stuck in the mud and unable to adjust? Do these companies have a secret approach, a strategy that others are unaware of, or are they simply using some straightforward approaches to winning business? Well, when it comes to B2B marketing and sales, some companies are just better at performing a gap analysis than others. What is a gap analysis and how does it help companies increase gross profit? Simply put, a gap analysis is a simple tool that empowers companies to retain existing business and increase market share. How can your business benefit from a gap analysis?

What is a gap analysis?

A gap analysis is used to define the existing opportunities within an individual territory and for the company’s entire market. In essence, it allows companies to determine the “gap” between what they currently have as business versus what remains to be pursued. Companies that perform a gap analysis are able to put a plan in motion to retain existing business, while adopting aggressive strategies to grow their market share. The resulting gap can then be used to set goals and objectives for individual territories and for the entire market. The company can then adopt strategic sales initiatives that aim to retain and grow sales. Companies that use a gap analysis are better able to anticipate future customer needs and spikes in customer demand. So, what is the process that allows companies to use the gap analysis? We’ll answer this question by providing an example of a company performing a gap analysis on a sales territory. Next, we’ll summarize how the territory gap analysis can be used to do the market gap analysis.

A gap analysis on a sales territory

Let’s assume that a company sells a “widget”, and that this widget is used as a consumable by customers who own and operate special machines. Every machine uses 5 of these widgets each year. There are 10 customers within this particular territory that the company is performing the gap analysis on. The key to this analysis is to define the company’s current business versus that amount of business it could still pursue.

For the territory and market gap analysis to be successful means the company must define several criteria. First, the company must determine the amount of gross profit generated for each widget sold within the territory. Second, the company must sum up the total number of widgets that could be sold each year within the territory. Third, it must total its current gross profit within the territory based on current sales, versus what remains to be pursued. Finally, it must replicate these steps in each and every territory in order to perform a gap analysis on the entire market. These steps are outlined below.

  1. Define value of widgets in terms of gross profit
  2. Determine number of widgets for entire territory
  3. Determine amount of gross profit at current business levels
  4. Determine the gap and express in gross profit

Territory

number of machines at each customer

widgets per machine

total widgets available

current unit sales

territory "gap"

Customer #1

5

5

25

15

10

Customer #2

10

5

50

30

20

Customer #3

5

5

25

15

10

Customer #4

15

5

75

35

40

Customer #5

24

5

120

62

58

Customer #6

33

5

165

85

80

Customer #7

10

5

50

33

17

Customer #8

6

5

30

19

11

Customer #9

4

5

20

17

3

Customer#10

3

5

15

13

2

Territory gap (units available)

251

Gross profit for each widget

$50.00

Remaining territory potential or "gap"

$12,550.00

In the table above, the company has accounted for all the customers in this territory, the total widgets available to sell based on the number of machines these customers have, the current sales in units for the company and finally, the territory’s “gap”. The company takes the number of machines for each customer and multiplies it by the 5 widgets each machine would use a year. The gap is the difference between the “total widgets available” minus the “current unit sales” columns. For example, customer number #1 has 5 machines and 25 possible widgets they would purchase a year. The company is currently selling 15 widgets. Therefore, the gap is simply 25 widgets minus 15 widgets, leaving this particular customer with a gap of 10 widgets that the company could pursue at this account. The company then duplicates this step for the entire territory and sums up the territory’s gap in terms of the gross profit that remains.

Using the same information for the market gap analysis

Continuing on our example above, the company will now take this territory gap analysis and duplicate those efforts across all territories. The sum of these numbers will then be used to determine the market gap analysis. In our example above, this particular territory’s gap is $12,550.00. In order to get a picture of the market’s gap, the company would simply total up all the individual territory gaps in order to derive the remaining portion of the market that the company should pursue. Any portion of the market not covered by the company will be easy to include within the overall market gap analysis.

When companies look to perform a market gap analysis, they should first start by assessing the results from individual territories. Once they’ve completed the analysis for each territory, they can then accumulate these results in order to establish what remains for the entire market. In terms of where this information can be gathered, it really does come down to doing your homework on the market. Ask your customers what their volume requirements are or research your customer’s business online. There is plenty of information you can use to perform the gap analysis. All you need to do is to put that information together.