Grow Your Sales Velocity
“You missed your quarter-end goal by over 14%!” The CEO of the protein bar company pointed out to the Chief Sales Officer with an edge in his voice. “And you are asking for a bonus?"
The CSO smiled and said, “Yes.”
The CEO raised his brows.
“You see, the goal was miscalculated,” the CSO quickly interjected. “We should be measuring Sales Velocity and not just Sales as the basis for bonuses for the salespeople.”
The CEO leaned in, “What’s so important about Velocity?”
“Good question” said the CSO. “Our Sales Velocity measures how well we’re selling our protein bars - where they’re available. For example, although we only sold $500,000 of the Chocolate Dream Bars through Delicious Markets - missing that quarter-end goal - that’s because they reduced the number of their stores where they would carry our protein bars in that quarter. However, we actually increased the number of bars sold in each store thanks to a great promotion run by my staff.”
“Hmph!” grunted the CEO. “But you still did not sell what you forecasted!”
“But”, said the CSO, “keep in mind that it’s all about measuring Sales Velocity. That means measuring the change from period to period in the total units sold divided by the number of stores or points of distribution.
Sales Velocity can be measured in many ways but I’ll give you a simple example of unit sales in a set number of stores in order to make my point. Two quarters ago, Delicious Markets sold the Chocolate Dream Bars in 80 of their stores. We made $600,000 in sales on that particular bar that quarter with 300,000 bars. So our Sales Velocity Baseline, putting it the simplest way possible is:
“Okay, but the prior quarter was a hundred grand more than this last quarter,” the CEO complained.
“True, but let’s keep our eye on that Sales Velocity,” urged the CSO. “This past quarter, Delicious Markets reduced the number of stores where they carried Chocolate Dream to only 50 of their stores. I knew this was going to be a problem, so my staff and I arranged a great promotion - and we achieved:
“We increased the movement of the units through the stores on a per store basis by 1,250 units, that's 33% more units flying off the shelves!” The CSO finished her explanation with a wide smile.
The CEO leaned back in his chair. “I’m starting to see the value of this Sales Velocity business. It makes sense to track velocity. But we still need to keep pace with gross sales."
The CSO leaned forward in her seat. “I'm going to talk to Delicious Markets, to make a case for expanding the number of their stores that will carry the Chocolate Dream Bar."
The CEO stood up and waved one arm. “The sales velocity is something we can influence, as you’ve pointed out. We can run promotions, increase advertising, and build customer affinity for our brand.
The CEO who was smiling now. “I’m liking this Sales Velocity idea.” He began to pace, thinking out loud. "We'll add this to the bonus calculation.” He turned to the CSO. “This quarter though, No bonus.”
“If I get Delicious Markets' sales up...?”
“Then we’ll talk about it.”
This conversation could be happening in your office.
Calculating Sales Velocity as a standard KPI is another way to evaluate how your products are performing. With sufficient data, you are able to pinpoint the ‘why’ of sales in different markets so that you can plot your approach to increasing overall sales.
There are a variety of ways to measure sales velocity. As you use the information carried in your systems, be consistent in measurements by time period and by points of distribution. This yields tremendous insights that can put your company at the top of the game!
With the right Enterprise Resource Planning (ERP) system, calculating Sales Velocity will be a powerful statistic to include in your dashboard. Constructive conversations with your sales and marketing team about goals and tactics are sure to follow. Your team can use this information to grow the company. Good for everyone, all around!
Rubenstein / Justman Management Consultants (RJMC) is expert in accelerating sales by using data and smart dashboards. RJMC provides Project Management for important financial and operational systems selection and implementation. Give us a call today at 310-445-5300 - We Get Projects Done!