How to analyze sales data to increase profits

How to analyze sales data to increase profits

The key to increasing profits from sales is to analyze your sales results to figure out not only what people are buying, but also how and why. This will help you sell the best products at the best prices using the best distribution channels.

You also need to remember that increasing your profits doesn’t necessarily mean increasing your sales volumes. You can increase profits by selling fewer items with bigger margins, for example. You can also sell the same amount of units but decrease your cost of goods sold.

Of course, increasing sales volumes is also important, and data can help there, too.

Here’s how your company can use data from your sales to improve your bottom line.

  1. Create data categories

    The first step to increasing your profits using sales data is to generate the right kind of data. This means having your salespeople and accountant record sales using the following tracking categories:

    Product units sold

    Analyzing the number of units of each product you sell each month will help you determine if one product has stagnant sales as compared to last year, and/or if another product is gaining in popularity. This will also show you the percent of your sales each product makes up. If one of your most profitable products has seen decreasing sales the last two or three years, it might be a sign that it’s near the end of its lifecycle and you need to find a replacement product.

    Declining sales figures might also tell you it’s time to lower your prices or find a new place to sell the product. An increase in sales might tell you it’s a good time to raise prices or that a new distribution channel change is working.

    Sales by margins

    This data will help you determine which products are the most profitable by profit margins. For example, your blue widget might bring in the most total dollars, but it only gives you a 5 percent profit margin. Your red widget might only bring in 75 percent the gross sales of your blue widget, but it provides a 20 percent profit margin.

    This means you’re getting a bigger return on your investment from your red widget.

    Looking at sales using unit sales numbers and sales by margin will help you determine if you need to put more effort into selling red widgets, or if your sales volume with blue widgets is so high you’ll always have better gross profits selling these widgets.

    Sales by price point

    Do you sell similar products at different prices? For example, do you sell a bargain product and a high-end product? Examining sales by price point might help you re-examine your brand strategy.

    If the two similar products have different volumes in different distribution channels (e.g., a website vs. a brick and mortar store), you might determine that you want to change your marketing strategy. For example, your sales data might tell you that people who shop online want your bargain product and people who come into a retail store are willing to pay more.

    Sales by distribution channel

    Distribution channels can include:

    • Brick and mortar store
    • Your website
    • Third-party e-commerce website
    • Direct mail
    • Direct response broadcast
    • In-house sales reps
    • Contract sales reps
    • Wholesalers

    To maximize your profits, you need to examine each of your distribution channels by sales volume, cost of selling and customer satisfaction.

    For example, a third-party e-commerce site might be driving most of your sales. However, by the time you’re done with seller fees, shipping and returns, your margins might be much lower than the same items you sell with in-house reps.

    The opposite scenario might be true. In-house sales reps might generate higher sales, but by the time you’re done fulfilling orders, paying shipping fees, dealing with bad debt and spending money on customer phone calls, your margins might be extremely low.

    Finally, happy customers are often repeat customers—the lifeblood of most businesses. If possible, analyze your sales data to determine which customers are your happiest and how you acquire and service them.

    Sales by rep

    Another way to analyze sales data is to review your sales by each sales representative you have. You must do more than just rank them by gross sales, however.

    Find out which reps have the highest product return rates, sell the most high-margin products, generate the highest gross profits, have the largest number of new customers each month, and have the best customer satisfaction. This will help you improve each rep’s performance.

    Analyze website analytics

    Ask your IT person to meet with your sales manager at least once each month to review your website data. This will help you learn what keywords people are using to find you, which pages people are most interested in, which product pages are creating the highest conversion rates (sales), and which of your content is most read.

    Ask your IT person to install Google Analytics to your website, or find out if he or she has a recommendation for a better free analytics program.

    This can help you market specific products better.

  2. Review advertising data

    In addition to reviewing your website performance, analyze your social media data. Find out how your Twitter, Facebook, LinkedIn, Instagram, YouTube and other accounts are performing.

    Find out where you are getting the most leads. Next, look at leads that have converted into sales and see if those leads are coming from one or two specific marketing channels. Analyzing this type of data is critical for improving your sales pipeline, explains the Kini Group, a sales transaction analytics firm, in its blog post, Supercharge your Revenue with Better Sales Data Analysis.

    Send and review customer surveys

    Customer surveys can provide you with very helpful sales data. Ask customers how they heard of you, why they purchased from you, if they received what they expected and why they re-purchased from you.

    You can find valuable data from surveys. For example, you might find customers are interested in your (or your competitor’s) warranty more than the price. Customers might tell you that it’s too difficult to get hold of you and so they are not likely to shop with you again. You might find that a large percentage of your customers buy from you because of your support for a charity.

    You can start conducting surveys using a free, easy to use online platform like SurveyMonkey. You can conduct simple surveys at no cost, keeping the results in your account to review during the year. If you want to conduct more robust surveys (with more questions), you can upgrade to a paid account.

  3. Take advantage of external sales information

    In addition to your own sales data, analyze what’s going on in your industry. Take advantage of government studies, trade association surveys and academic papers.

  4. Rank your findings

    Once you’ve analyzed your data using a variety of categories, rank the categories in order of total sales (units), gross profits, price points, margins, distribution channels and customer satisfaction.

    You can compare your sales for each product against each other. For example, you might rank your products based on how many total units each one sold. You’d then rank each product by how much gross profit it generated for the company. You can then rank each  product based on the margins it generated.

    You can rank your distribution channels to see which ones generated the most profits and best margins. For example, your e-commerce site might be generating the biggest volumes, but your direct mail might be generating the best margins.

    You can do this using a simple Microsoft Excel spreadsheet. You can rank products by using the “Data” function to sort columns. In our sample spreadsheets below, you can rank the widgets’ performance by gross sales, margins, etc. Their rank (best- to worst-performing widgets) will depend on your company’s goals.

    Rank by number of units sold

    In Exhibit 1, the widgets are ranked by the number of units sold – Column D. (Click on the document image to see it more clearly.)

    sales data units sold

    Rank by total gross revenue

    In Exhibit 2, the widgets are ranked by the total gross revenue they generated for the company – Column E. (Click on the document image to see it more clearly.)

    sales data revenue

    Rank by number of units sold online

    In Exhibit 3, the widgets are ranked by how many were sold online Column F. (Click on the document image to see it more clearly.)

    sales data sold online

    Have your sales team discuss how you can improve the performance of each product in these different categories.

One result of this data analysis might be that you determine it’s time to drop one of your products from your line. You might also decide it’s time to stop selling using one of your current distribution channels.

While management should review sales data at least on a monthly basis, it’s a good idea to have your sales, accounting and marketing staff members review your sales data together on at least a quarterly basis.

Analyzing your sales data will help you stay current with your product and pricing, use the best distribution channels, and continue to increase your profits.

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