Sales are the lifeblood of your business. They generate revenue to keep your operations going and your company in business. However, they also do something else. If you look closely at your sales records, you will see that they generate a tremendous amount of data that your business could leverage to even greater success. Leveraging this data is the realm of sales analytics.
What is Sales Analytics?
The practice of using business analytics tools to transform sales related data, such as sales transactions and outreach efforts, into actionable insights, is the function of sales analytics. When done right, sales analytics can help your company identify new opportunities, spot weaknesses in your outreach process, recognize potential niches, and pinpoint what you need to do in order to grow and succeed.
The term “sales analytics” refers to a collection of different formulas or metrics. Each one gives you a different insight into your operations. Ideally, you will use a combination of these formulas to develop a complete picture about your company’s sales efforts.
Important Sales Metrics to Track
As a business, it is useful to know what your most popular products or services are, what kind of audience is your most frequent buyer, and what your ROI is on outreach efforts, among other things. While there are literally hundreds of metrics you can track to get a better picture of your business, here are 13 sales metrics to get started with sales analytics. Each of these metrics has the potential to transform the way you do business.
Total Revenues (by Year/Quarter/Month/Week/Day)
Before you can increase your sales, you have to know what they are. There are lots of metrics that are based on your revenue, so start there. It might sound simplistic or straightforward, but the key here is to make sure that everyone on your sales team, if not all of those in your organization, understand how much money your company makes.
You should pay attention to how much money your company is making compared to different time periods. For instance, you may want to look at how much money your company made in the prior year, month, or week.
Similarly, earnings are important too. Earnings are how much you make after expenses. If you are selling a million widgets, for instance, but only making $10 in profit, it is a cause for concern.
2. Sales by Product/Service Type
Total Sales of Product A
Total Sales of Product B
Next, look at how much money you make on each product or service you sell. Doing so will help you understand which of your products are selling and which are not.
Ideally, you should be looking at this metric in a number of configurations. Sales by product is important but you can also gain insights by looking at the total sales for a class of products or services. Doing so will help you see whether a certain category of products is working better compared to other categories.
Net earnings by product or service and division or segment are equally important. It will help you decipher what contributes to your profitability.
3. Utilization by Segment
Utilization = Hours Worked/Available Hours
Utilization is important as well, especially if you bill by the hour. This metric looks at how much of your employees’ time is billable and compares that figure to the total number of hours your employees were available.
If your utilization rate is very high, you might not have enough resources for your employees to leverage. You can lower the utilization rate by creating more templates and standardizing your operations. At the same time, if you find that you are not utilizing your employee’s time as much as you’d like, you could find that you don’t have enough customers or that you have too many people on staff.
In addition to utilization, you may also want to look at “chargeable utilization” – the number of hours for which you actually bill compared to the total available hours – and utilization by employee.
4. Sales Growth
Sales Growth = [(Sales in time period – Sales in previous time period)/ Sales in previous time period] x 100
The “sales growth” metric helps you see how much your ability to produce revenue has improved (or declined) over a particular period of time. To calculate this metric, start by subtracting your sales over a past period of time (e.g., one quarter) from another period of time (e.g., the present quarter). Take that sum and divide it by the sales in a previous time period and multiply the result by 100. This will give you a percentage increase or decrease.
Example: Sales You sold $300 million worth of goods in the last quarter. In the present quarter, your sales increased to $400 million, which is a 33% increase over the last quarter.
This metric has powerful applications because it helps you see how much your sales have changed over time. You can also use this formula to measure the success of different initiatives.
Example: You could calculate how much your sales improved after you started advertising on social media. You could then compare the increase against the code of advertising to see how effective your ad campaigns are.
5. Target Revenue
Target Revenue = Number of Projected Sales x Average Transaction Size x Time Period
Your target revenue is where you’d like your current revenue to be. However, it is important to have realistic projections. Of course, you’d like to make a million dollars, but that probably isn’t going to happen by next year if you are currently only selling 1,000 items a year at $100 each. A realistic expectation would be to, let’s say, increase the average transaction size by $10 or increase the number of items you sell by 20% (or both). When you are setting a target revenue, keep an attainable goal.
6. Sales to Date
Sales to Date = Total Sales from the Start of your Fiscal Year to Present
Sales to Date is a sales metric that is very similar to Total Revenues. The difference here is that instead of using a specified time period, it totals all of your sales from the first of your fiscal year.
This metric can be useful because sometimes a set time period fails to capture a specific event. Take high school prom, for example. Some years, it falls in May, while at other times, it is at the end of April. If you own a clothing store, comparing sales on a per month basis may be misleading. Instead, you may want to look at a year-to-date sales metric, say on June 1, because that would capture all of the prom dress sales and tuxedo rentals for the season.
7. Previous Sales
Total Sales by Past Period
Looking at your total sales from a previous period will help you get an idea of how far you have come in your efforts. While the number means very little on its own, Previous Sales is a powerful metric when you compare one year to another or one quarter to a past one. Including previous sales instead of simply looking at sales growth is valuable because it helps you conceptualize the numbers differently. The metric may also be more applicable to your distribution, operations, or manufacturing divisions because those departments deal with physical goods and actual product levels.
8. Average Purchase
Average Purchase Size = Total Sales in a Set Period / Number of Sales Made in the Same Set Period
Average Purchase Size (or Average Purchase Value) refers to the average size of your sales transactions. You calculate this figure by dividing the total sales you made in a set period (e.g., one month) by the number of transactions you recorded in that period.
Example: If you had $20,000 in revenue for November and you posted 400 transactions, your average transaction size was $50 for the month.
This metric is useful because it helps you understand your customers’ behavior and enables you to craft marketing strategies that leverage this tendency. To use our earlier example, if you find that your average transaction size is $50, you may want to offer a coupon to incentivize customers for spending $60. Your average purchase value can also give you a better idea on how much to spend on your marketing efforts. When compared against customer acquisition costs, it can tell you if your marketing strategy is working.
9. Repeat Sales Rate
Repeat Sales Rate = Number of Repeat Customers in a Set Period / Total Number of Customers in a Set Period
Repeat Sales is an important metric since it gives you an idea about the quality of your product or service. It is especially important for SaaS and similar organisations that run on subscription models. If your repeat sales are low compared to the industry average, it signals a high churn rate, which does not bode well for the sustainability of a business. Typically, it takes less money to retain customers than to acquire new ones. If you are not getting much repeat business, two likely causes for the trend could be: you are expanding rapidly and attracting a disproportionate number of new customers; or your product/service/customer experience is not perceived as valuable enough to warrant a repeat visit.
10. Sales by Region
Total Sales by Location
Make sure to look at your sales by region, too. This sales metric can help you identify whether you are attracting a certain demographic to your store or website. It can then inform your marketing strategy, such as what kind of advertisements to make and where to place them. This information can also help you identify potential areas for expansion or relocation. For instance, if 80% of your customers come from a neighboring town, you may want to consider opening a second location there or targeting some of your ads to people who live in that area.
11. Lead Conversion Rate
Lead Conversion Rate = [(Number of Converted Leads / Total Number of Leads) x 100]
Lead Conversion Rate is the percentage of your customers who complete a specific action. The exact activity depends on your definition of conversion. For some companies, conversion can be the number of people who sign up for a newsletter while for others, it might be when a lead becomes a paying customer. In fact, most businesses will have different conversions for different stages of a sales funnel. Ideally, you could calculate conversion rates for each stage to see where improvements could be made.
Example: Ten people out of 100 who visit your website download your free e-book, so your lead conversion rate is 10%.
Example: Of the 200 people who clicked on your ad, 25 of them made a purchase. This makes your lead conversion rate 12.5%.
This is a powerful metric for comparing the success of different efforts. You could see if one ad performs better than another, and accordingly, make tweaks to your ad campaigns. Similarly, you could compare how many people download your e-book compared to a white paper, which gives you a peek into the behaviour of your target audience.
12. Sell-Through Rate
Sell-Through Rate = [(Number of Inventory Items Sold in that Period / Total Inventory at the Beginning of a Set Period) x 100]
Sell-Through Rate or STR is a percentage that expresses what percentage of your inventory you sold during a set period of time. Many retailers use this metric to get an idea of how effectively they are managing their inventory.
Example: You had 100 widgets in stock at the beginning of August and you sold 75 of them that month. Thus, your sell-through rate for August is 75%.
Example: If your sell-through rate is 100%, you sold all the items in stock during that period.
Ideally, you want to have a high sell-through rate. However, a 100% STR for a product or a category of products could also mean you failed to assess the demand, accurately. In turn, you might have missed out on some sales opportunities. Conversely, any STR that is less than 100% means that you have extra inventory at the end of the month. Inventory costs money to procure and needs to be managed effectively. Ideally, you should be comparing your STR against the industry average to see how well you are maintaining the supply-demand balance.
Cannibalization = [(Sales of Existing Product in Past Period – Sales of Existing Product in Present Period) / Sales of New Product in Present Period] x 100
Cannibalization is a sales metric that expresses the loss in sales of an existing product due to introduction of a new, competing product. Cannibalisation is expressed in percentage. For instance, let’s say you sell tents. You have a two-person tent model in green. This summer, you decide to launch a new product – a two-person tent with a canopy in blue. Only looking at the total sales of two-person tents will not give you the complete picture. For instance, there is a chance sales of the green tent fell drastically after the introduction of the blue tent, which means the green tent could be declared obsolete.
Example: You sold 100 green tents last month. This month, you sold 60 green tents and 50 of your new blue tents. Thus, your cannibalization rate is 80%.
Cannibalization can help inform your manufacturing strategy and can help you with better inventory management. For instance, if the cannibalization rate is high, you might want to stop the production of the older product.
Sales Analytics Can Unlock Your Potential
Sales analytics is one of the most powerful tools for understanding what contributes to your sales and unlocking new opportunities for revenue growth. It can provide insights, which can be used to optimise your sales funnel and make strategic business decisions.
However, gathering relevant data and analysing it for insights can be time consuming tasks. For one, effective sales analytics calls for a centralized data warehouse, which can be very resource-intensive to setup and maintain. At IronFocus, we use technology to analyze sales trends and help you understand your business better. With us, you can focus on the bigger picture while we work in the background to give you all the information you need to make well-informed business decisions. Let’s join hands and turn your data into dollars.