# Quantification of revenue loss due to unfulfilled demand

I was in the shop of one of my retail client for my monthly discussions. I saw that he was engrossed in some urgent work. So, I sat on a sofa near the retail counter.

Unintentionally I started watching the business transactions happening over the counter. I saw customers coming and demanding product from sales man. The sales man with a smile was getting the products from the shelf and giving it to customers. I also saw a few customers returning due to unfulfilled demand.

The ratio of customers with unfulfilled demand was around 1:5. I became curious to know the reason for unfulfilled demand. On inquiring from head sales person, I was told that the product demanded by customer was not available in shop. Infact the sales person requested for customers residential address to deliver the product within 2 hours. But unfortunately the customers did not take the offer and went back to some other shop.

Since my client was still busy in the urgent work, I was able to spend more time on the sofa. But this time, I was trying to watch the communication between the customer and the sales person. I was putting all my ear to understand what the sales person say to customer whose demand was not fulfilled. I overheard - " sir, we do not have the requested product but will send the product to your home within 2 hours." Immediately the customer replied - " no thank you, I will take it from some other shop."

Now my client was free from his urgent work and he called me inside his cabin. I narrated my observation and asked him to quantify the revenue loss from the unfulfilled demand. He said that he was aware about the loss in revenue but was not aware the quantum of loss.

I requested him to conduct a small experiment for 15 to 30 days to quantify the loss. I gave him plan for random sampling for estimating the unfulfilled demand loss in revenue.

After a month, I got the data. I did some data wrangling and was able to quantify each day loss from unfulfilled demand. Now the question was to find the range within which the loss could be quantified. Estimation of confidence interval along with bootstrapping of sample data came to my help.

Thanks to my coaches in usage of statistical tools - Sudhakar Potukuchi and Prof. Milind Sohani.

After completing my statistical study, I shared the results with my client. The loss was around 7-15% of firms yearly revenue. The next question was to find a solution for stopping the loss. That day the clients wife was also sitting in the meeting. I narrated the communication which happened between the customer & sales person when the demand was unfulfilled by us. On hearing the conversion his wife proposed to sit at the counter and handle the communication to stop unfulfilled demand.

I sat on my comfortable place (the sofa) and saw the same transactions again. This time I saw that the clients wife did a good job. There was absolutely no unfulfilled demand. I inquired the clients wife as to what she told the customers. She whispered in my ear and asked me to keep the same confidential.

In short, keep an eye for unfulfilled demand, quantify them. If the loss is big, brainstorm solutions and implement.