Overcoming The Addiction to Last Year’s Sales
Those who analyze and plan using only the past are condemned to repeat it.
For some companies, last year’s sales is the only guidepost by which to measure current performance. While ‘Last Year (TY)’ and ‘Sales’ are important metrics, over-reliance on them may result in a skewed portrait of your business’ overall health and may mask far greater opportunities. It’s a lot like driving forward while looking through the rearview mirror.
Just as business intelligence is sometimes used as proxy to fill in for gaps in enterprise applications, companies sometimes use ‘Last Year’ as proxy for a financial ‘Plan’ if they don’t have one. Therefore, a critical component to better understand and measure performance is to implement a financial planning process down to the lowest product/time hierarchy level that is relevant and operationally sustainable. Last Year should be one of the inputs into the planning process, however, the plan should include many other empirical macro/micro data points, industry trends, and strategic inputs.
The following are other broad areas of measure to gain further insights beyond ‘Plan’ and ‘Last Year’.
- Visibility across both a broader timeline (e.g. 2-3 years) and more granular time slices shown together on a single view (e.g. Last Week, 90-Days, Month, Quarter, Half) provides more insight into seasonal opportunities and helps identify if performance fluctuations are a recent development or a long-term phenomena.
- Unit sale rates compared against inventory (e.g. Sell-Through, Inventory Turn) and stock-out frequency provide visibility to quantify ‘lost sales’ to build that potential demand back into the future plan.
- Insights into Initial Mark-Up (IMU), Gross Profit (GP), and Cost of Goods Sold (COGS) are critical to understanding what is actually being delivered to the bottom line regardless of top line sales and any shift in cost structure.
- Metrics such as Average-Order-Value (AOV), Cost-Per-Acquisition, or Sales-Per-Square-Foot provide insights into how productive real-estate or customers are in revenue generation.
- Brand or product level performance comparisons across each distinct channel in a single view as a percent-to-total highlight cross-channel opportunities.
- Numerical ranking of product, brand, or category performance across various time slices will further illustrate trend at a more granular and operational level.
- Product Breadth / Comp Locations
- Visibility into the distinct product/SKU count provides insight into product assortment shifts while comparable location metrics allow for a more balanced and accurate portrayal of performance trends.
In summary, there are a lot of other analysis strategies that should be used to gain additional valuable insights and increase revenue. Beware of focusing too heavily on Last Year as you just might repeat it…and not beat it!