Sales Analysis by Product

Sales analysis is a term used to mean analysis of actual sales results. Sales analyses usually are made on one or more of four bases – territory, product, customer, and other size. The objective of these analyses is to find the areas of strength and weakness, the products that are producing the greatest and the least volume, the customers who furnish the most productive sales results, and the size of order that is the most profitable. Such information enables a company to concentrate its sales efforts they will bring the greatest return.

Each of the four bases for analysis will be considered in turn. The general approach is the same in each case.

Sales Analysis by Territory:

The invoice is usually the basic sales record. It contains the following data essential to sales analyses: (1) customer’s name, (2) customer’s location, (3) products sold. (4) Quantity of each item sold, (5) price per unit, (6) total dollar sales per product, and (7) total dollar amount of order. In some cases it may be desirable to add further information about the customer, such as size, type of business, user or wholesaler, chain or independent, and so on.

The first step is to decide what geographical control unit to use. The county is the typical choice because (a) counties can be combined to form larger units such as territories and (b) markets potential are usually developed on a county basis since it is the smallest unit for which many items of data are available. Thus, it will be possible to compare actual sales in a county with the county’s market potential.

Both sales and market potential are then tabulated by territorial units. Those territories in which sales fall below potential can be given special attention. Is competition unusually strong in these areas? Has less selling effort been put there? Is the sales force weak? Studies of these points will help the company bolster its weak areas. Sales efforts can be concentrated where they will do the most good.

Sales Analysis by Product:

Over the years a company’s product lien tends to become overcrowded unless strong continuing action is taken to eliminate those items which no longer are profitable. By eliminating weak products and concentrating on strong ones a company cab often increase its profit substantially. A classic example is Hunt Foods, which over an 11 year period, reduced its product lines from 30 items to 3 items yet increased sales from $15 to $ 120 million.

As in the analysis of territories, deciding what product units to use in product analysis is a problem. At one extreme a firm might classify products only such by such general groupings as industrial and consumer. At the other extreme, a firm might classify separately each product variation by color, size, and so on. Sales of the more general groupings of products may be easier to analyze, but the poor sales performance of certain individual products may go unnoticed due to the combining of a number of products into one group. Analysis by detailed breakdowns is more expensive, but is more apt to show the strong and weak products in a way that will permit constructive action.

A product abandonment decision must take into account such variables as market share trends, contribution margins, effect of volume on product profitability, and degree of product complementarity with other items in the line. Analysts have constructed computerized models which take the above types of data into account. The goal is to assist management in its product deletion decisions. It does so by dealing with the total product line. Data inputs consist of standard cost accounting and market data, while the outputs show the value (typically in the form of ratios) of each product in the line. Such models are particularly of value to multi-product firms where some degree of complementary exists between products and where individual products vary substantially in their projected growth rates.

Product analysis may be particularly effective when combined with territory analysis. Such a study may show that, while territory A is above quota in total sales, it is very weak in sales of product 2. Combined analysis of this type makes it much easier to spot the places where action should be taken. —