Definition of a Sales Analysis

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Most companies today have a wealth of data that's easily accessible and can be used to monitor and increase sales, generate new business and improve customer experiences. Yet, how many people know how to access the information they have to change raw numbers into meaningful information?

Traditionally, sales analysis is used to monitor the sales process through budgets, forecasts and sales reports to discover growth opportunities and to intervene in the sales process before serious problems may arise. Today, however, this is just the starting point. Advanced sales analytics compared to other data, like economic trends and marketing data, are specific to that company and can enable a business to zero in on new sales opportunities.

TL;DR (Too Long; Didn't Read)

A basic sales analysis examines how well a company's products or services are selling compared to how well they were expected to sell. If you define the term "sales" as products or services that are exchanged for money, you can then define sales figures as either the dollar value of those products or services or as the number of units sold.

Sales Budgets, Forecasts and Reports

Most companies begin the year with a sales budget, being the amount of sales they expect to make that year. Drafted by upper management, the sales budget helps companies determine how much money should be coming in so they know how much they can spend over the course of the year.

Upper management then asks the sales department for a sales forecast, which is an estimate of the realistic amount to be sold for a given period. While sales budgets are usually done on an annual basis, forecasts are usually for a smaller period of time, such as a week, a month or a quarter. Based on how the forecasts compare to the budget, the company can determine how actual sales will compare to the budget. Sales forecasts are usually done by each sales representative and then for the entire sales department.

Of course, sales budgets and forecasts are speculation — estimates of what the sales should be. It's not until the sales have actually been made that the company knows how much money has really been coming in. This information is gathered in a sales report. Like a sales forecast, a sales report is usually done on a weekly, monthly or quarterly basis.

What's in a Sales Report?

Before you can analyze sales, you will need to ensure that you have the required information in the sales report. A sales report usually contains three sections: a summary, a breakdown of sales and an evaluation by the person writing the report. The summary, for example, may highlight overall growth or bring attention to a new client's first large order, while the evaluation will typically explain how the report compares to the forecast.

Most of the information in the second section of the sales report, the breakdown of sales, can usually be generated automatically using sales software or client relationship management software. At a minimum, it should include a total of all sales for different products, usually broken down by each customer. It can also include:

  • Average deal size
  • Closing rate (the ratio of closed deals compared to new leads)
  • Average length of the sales cycle (in days or weeks)
  • Number of deals at different stages of the pipeline
  • Geographic breakdown of sales
  • Repeat customers compared to new customer sales

Basic Sales Analysis: A First Look

In most cases, a basic sales analysis is useful for gauging the effectiveness and productivity of a sales team or an individual sales representative. There are essentially three ways to do a basic sales analysis. You can:

  1. Compare the sales forecast to the sales budget
  2. Compare the sales report to the sales forecast
  3. Compare the current sales report to reports from previous periods

Suppose, for example, the sales budget anticipated a 20% increase in sales this year, but sales forecasts predicted only 10% growth for the first quarter. When the quarter was finished, actual sales were only 2% higher than the previous year.

At a quick first look, this could represent a huge problem for the company, which is now bringing in less revenue than for what it had budgeted. If the sales team or individual sales reps are underperforming, the company may need to scale back production or even consider laying off employees until sales increase.

Basic Sales Analysis: Looking Deeper

A deeper look at the numbers, however, may often show a different story. Gathering sales reports from the remaining three quarters last year, management sees that sales had also been slow for the first couple of months last year. Sales then spiked in the second quarter.

Additionally, there had been a supply problem in the first month, mentioned in the sales report summary and evaluation. This resulted in back orders, and the forecasts for the second quarter were actually up by 35% compared to the previous year.

This basic analysis reveals that there is no need to panic. However, weekly forecasts and reports should be monitored carefully, and the supplier should be contacted to ensure there isn't going to be another short shipment.

Advanced Sales Analytics

Companies have been using basic sales analysis since the days of pen and paper. Today, however, when sales data can be sorted and compiled with just a few clicks of the mouse, there is much more to be found in these numbers.

Suppose, for example, you sell office equipment to other companies. Sorting your sales data by customer purchases for the past year, you discover that those with service contracts bought on average 40% more supplies and equipment than those who did not. Instead of having your sales team cold call prospects with a leasing deal on a new photocopier, you realize you could drastically increase sales by leading with a free service inspection and selling service contracts first.

Much of the benefits of sales analytics comes from just knowing what questions to ask and then sorting your data. If you sorted sales by zip code, could you identify geographic areas that could benefit from a second store location or a new sales territory?

Sales Analytics Tools

Jerry W. Thomas, president and CEO of Texas-based Decision Analyst Inc., recommends 12 different ways of analyzing sales data to begin harvesting some of the information it may contain in order to improve a company's marketing efforts and profitability.

  1. Sales by SKU: Sorted by number of purchases by geographic area

  2. Sales by channel of distribution: Retail chains compared to warehouse club stores, distributors, etc.

  3. Sales per capita: The number of sales per state or other geographic area

  4. Sales compared to economic data: Are sales affected by changes in the gross domestic product, employment rates or other figures?

  5. Category development index: Comparing per capita sales of specific product categories with overall average per capita sales

  6. Brand development index: Comparing an individual brand within a product category to per capita sales

  7. Competitive trends: Monitoring your market share using a syndicated service that tracks all sales in your industry

  8. Analytical database: A database containing sales data, competitive data, demographics, economic data and marketing data for comparing sales to other metrics

  9. Cross-tabulations: Using an analytical database, compare states with the highest brand development index

    to the lowest and compare this to advertising expenditures, employment rates or other metrics

    10. Multivariate analysis: Using an analytical database, compare economic data and other variables to sales to determine correlations to sales success

    11. Loyalty program: Designed to discover what other products customers buy to find additional sales patterns

    12. Marketing research: Using focus groups and interviews to shed light on questions posed by your sales analysis report

References

About the Author

A published author, David Weedmark has advised businesses on technology, media and marketing for more than 20 years and used to teach computer science at Algonquin College. He is currently the owner of Mad Hat Labs, a web design and media consultancy business. David has written hundreds of articles for newspapers, magazines and websites including American Express, Samsung, Re/Max and the New York Times' About.com.