Sales Analysis – Annual Plan Control
In the article titled The Marketing Control Process for your Business – Explained, I outline what marketing controls are:
“Marketing control is a process where company management or executives analyze and assess their marketing activities and programs.”
The marketing control process includes four types of marketing control, they are,
- Annual plan control
- Profitability control
- Efficiency control
- Strategic control
This post focuses on the sales analysis part of the annual control plan. The other three types of measuring tools that fall under the annual control plan include,
- Marketing share analysis,
- Marketing expense-to-sales analysis,
- Financial analysis.
The sales analysis measures and evaluates the firm’s actual sales as it relates to its sales goals. The two types of analysis tools used are the sales-variance analysis and the micro-sales analysis.
A sales-variance analysis is a metric that measures the relative contribution of different internal and external factors to a discrepancy in sales performance. The ability to calculate and identify sales variance is an essential metric to understand so that the firm may address issues in expected sales deficiencies.
Suppose a manufacturer planned on selling 2,000 units of Product A in the fourth quarter at $2.50 per unit. The expected total revenue is $5,000. At the end of the fourth quarter, 1,700 Product “A” units sold at $1.95 per unit for total revenue of $3,315. The following calculation shows the price decline in performance versus the price decline due to a volume decreasing.
Sales-Variance Example Calculation
|Variance due to price decline:||($2.50 - $1.95) (1,700 units) = $935||55.5%|
|Variance due to volume decline:||($2.50) (2,000 - 1,700) = $750||44.5%|
Notice that almost half of the variance is due to a failure to achieve the volume target. The manufacturer needs to examine why sales failed to reach their expected sales volume. Possible reasons may include poor sales performance, lack of sales staff to cover a region, inferior quality product, or weak or no sales promotion activity.
The micro-sales analysis examines specific products, sales regions or territories, and other measurable factors that underperformed the expected sales goals. For example, imagine that the manufacturer in our case above sells Product A into three regions. They set their sales goals for region one at 900 units, region two at 400 units, and region three at 700 units for the fourth quarter. However, the actual sales volumes were 800 units for region one, 498 units for region two, and 325 units for region three. Thus, the sales manager notices a 12% sales reduction for region one, a 22% increase in region two, and a dramatic 73% drop in region three sales.
From the data, the sales manager may come to several possibilities. They may conclude that the salesperson in region three is performing poorly, a new competitor entered the market in that region, or the product is priced too high for the market. Other possibilities may come into play as well.
The sales analysis is just one tool for managing marketing programs. When used to analyze sales volumes, marketers can learn if internal or external factors are to blame for sales volume deficiencies or surpluses. The data collected can help marketers make adjustments to existing marketing programs and incorporate them into new programs in new markets.