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Sales Analysis

Sales analysis examines sales reports to see what goods and services have and have not sold
well. The analysis is used to determine how to stock inventory, how to measure the effectiveness
of a sales force, how to set sales. Sales analysis is a term used to mean analysis of actual sales
results. Sales analyses usually are made on one or more of four bases territory, product,
customer, and other size. The objective of these analyses is to find the areas of strength and
weakness, the products that are producing the greatest and the least volume, the customers who
furnish the most productive sales results, and the size of order that is the most profitable. Such
information enables a company to concentrate its sales efforts they will bring the greatest return.
Each of the four bases for analysis will be considered in turn. The general approach is the same
in each case.


Sales Analysis by Territory:

The invoice is usually the basic sales record. It contains the following data essential to sales
analyses: (1) customers name, (2) customers location, (3) products sold. (4) Quantity of each
item sold, (5) price per unit, (6) total dollar sales per product, and (7) total dollar amount of
order. In some cases it may be desirable to add further information about the customer, such as
size, type of business, user or wholesaler, chain or independent, and so on.
The first step is to decide what geographical control unit to use. The county is the typical choice
because (a) counties can be combined to form larger units such as territories and (b) markets
potential are usually developed on a county basis since it is the smallest unit for which many
items of data are available. Thus, it will be possible to compare actual sales in a county with the
countys market potential.
Both sales and market potential are then tabulated by territorial units. Those territories in which
sales fall below potential can be given special attention. Is competition unusually strong in these
areas? Has less selling effort been put there? Is the sales force weak? Studies of these points will
help the company bolster its weak areas. Sales efforts can be concentrated where they will do the
most good.


Sales Analysis by Product:

Over the years a companys product lien tends to become overcrowded unless strong continuing
action is taken to eliminate those items which no longer are profitable. By eliminating weak
products and concentrating on strong ones a company cab often increase its profit substantially.
A classic example is Hunt Foods, which over an 11 year period, reduced its product lines from
30 items to 3 items yet increased sales from $15 to $ 120 million.
As in the analysis of territories, deciding what product units to use in product analysis is a
problem. At one extreme a firm might classify products only such by such general groupings as
industrial and consumer. At the other extreme, a firm might classify separately each product
variation by color, size, and so on. Sales of the more general groupings of products may be easier
to analyze, but the poor sales performance of certain individual products may go unnoticed due
to the combining of a number of products into one group. Analysis by detailed breakdowns is
more expensive, but is more apt to show the strong and weak products in a way that will permit
constructive action.
A product abandonment decision must take into account such variables as market share trends,
contribution margins, effect of volume on product profitability, and degree of product
complementarity with other items in the line. Analysts have constructed computerized models
which take the above types of data into account. The goal is to assist management in its product
deletion decisions. It does so by dealing with the total product line. Data inputs consist of
standard cost accounting and market data, while the outputs show the value (typically in the form
of ratios) of each product in the line. Such models are particularly of value to multi-product firms
where some degree of complementary exists between products and where individual products
vary substantially in their projected growth rates.
Product analysis may be particularly effective when combined with territory analysis. Such a
study may show that, while territory A is above quota in total sales, it is very weak in sales of
product 2. Combined analysis of this type makes it much easier to spot the places where action
should be taken.


Sales analysis by salesmen:
The turnover of salesmen is ascertained to measure and control the relative efficiency of each
salesmen, measure and control the relative profitability of salesmen, provide useful data for
fixing up sales incentive and compare volume of sales with the sales and cost of sales, in order to
exercise control.


Sales analysis by customer:
Such analysis is useful to ascertain the net profit by each customer and determine the customers
preference in respect of quality and type of products.


Sales analysis by sales channels:
Such analysis may be done in order to ascertain the profits of various channels.


Sales Analysis by unit price:
Such analysis is done to prepare demand schedule in respect of each product and determine the
optimum selling price of each product.


Sales Analysis by periods:
Comparison over a period of time will help to reveal trends or fluctuating characteristics.


Sales Analysis by order size:
Such analysis will be useful to compare the handling and transportation cost with sales volume
or various sizes and decide upon the trade discount on quantity for the various sizes.


Marketing cost analysis

Marketing cost analysis is another important tool of marketing control. In recent years, business
firms all over the world have experienced steep escalations in their marketing and distribution
costs. They have found, to their dismay, that increased sales do not necessarily bring them
increased profits. Containing marketing and distribution costs has become an imperative for
optimizing profits. It has also become an imperative for survival against the growing
competition. The first requirement in controlling the marketing costs is to comprehend the
components of the marketing costs and the methods available for their control. Careful and
systematic marketing cost analysis confers a variety of benefits on the firm. Marketing costs in
modern, large-sized firms belong to a kaleidoscopic variety. There are ever so many components
of the marketing cost and they vary in their significance, size, measurability and controllability.
Generally, marketing costs are more difficult to measure and control, compared with other costs,
such as material costs and manufacturing costs. Within the various components of marketing
costs, some are relatively more amenable for measurement and control than others
The first step in marketing cost analysis is to gather the cost details of the various marketing
function and analyze the function wise cost. For doing this, in the first instance various
marketing activities have to be grouped into a few major and clearly identified functions. The
marketing expenditure must be broken up over these functions.

Marketing cost and their classification


Selling cost

Expenses incurred in the marketing and distribution of a product.
These include the following
Direct selling cost: Salaries, travelling expenses and entertainment expenses in respect of sales
promotion activities
Advertising and sales promotion: Such as rent, pricelists, samples an market research cost
Credit collection costs: Such as bad debts, cash discount allowed and billing
Financial and general administration costs: Such as main sales office expenses, taxes and
insurance, telephone, postage and royalty.

Distribution Cost

Expenses that are related to the transportation of goods from production locations to customers,
resellers or other destinations are distribution cost. Changes in the distribution cost can have
an effect on the final sale price of the product, as factors such as shipping costs, tolls, warehouse
fees, inventory taxes, and other expenses must be priced in.
Assembling: Such as picking and packing costs
Transportation: Freight, insurance, shipping costs and running depreciation.
Warehousing and storage: Such as rent, rates and insurance and loses in warehouses
Financial and general administration cost: Such as costs of carrying, buying of supplies,
administration expenses apportioned to distribution activities


Kind of Analysis

Selling and distribution cost can be viewed in relation to the price of the product
Lines on Which Marketing Costs are analyzed:
By Product:
* By brand

* By stock turnover ratio of the respective product; expenditure for fast selling products and slow
selling products.
* By the warehousing cost incurred by each product.
By customer group:
* By customer type

* By the proportion of cash and credit sales in each customer type.
* By the mode/manner of delivery taken by customers
By territory:
* By the selling expenses incurred by each territory
* By the promotion expenses incurred by each territory
* By the cost of credit incurred by each territory
* By the rate of turn round of stocks in each territory
By marketing method and channel type:
* By the method of sale; direct to customer, or through wholesaler or retailer, or commission
agent.
* By order size and order handling cost to the firm.
* By salesman; cost of sales calls, cost of orders booked, order to call ratio etc.
* By price category and discount classification; cost incurred at each price category.


The methodology of collection and distribution of marketing expenses can be described by the
following steps:

Step1: Analysis by nature or object of expenditure
Each expense is collected with reference to a product or a job number to which it belong
A representative list of some of the items of selling and distribution expenses is given below:
Advertising
Remuneration
Insurance
Packing materials

Step 2: Analysis by function or cost centers or departmentalization of selling and distribution
expenses
These expenses are further allocated to one or other functions to which they relate. Items which
could not be allocated may be apportioned on suitable basis. This analysis can be further
extended to locations.
Following departments are often found in the organization:
Advertising and sales promotion
Transportation
Warranty claims

Step3: Analysis by products or product groups
In order to do this the product must be grouped according to the common factors like price,
methods of sales, salesmen and sales orders. For example, analysis can be made whether the
goods were sold at wholesale price or retail price. Such analysis measures the effectiveness of
cost with regard to their application to the various products. This may be done either by channels
of distribution or methods of sales or by customers.


Suitable examples to analyze the marketing cost are

Order getting and order filling costs:
The order getting costs are all costs of obtaining orders through activities as selling, advertising
and sales promotion. Order filling costs per unit of output tend to increase in volume of sales as
the company has to service customers living farther and farther away from its factories and
warehouses.

Fixed costs and variable costs:
The fixed costs will be collected for the firm and set off against the contribution earned by the
products. Variable costs can be identified with the products that will be allocated to the various
product or product costs.

Cost Effectiveness Analysis:
One may be able to find the cheapest means of accomplishing a defined product. One may be
interested in ensuring the maximum value out of a given expenditure in a situation where there is
difficulty in exact quantification, in financial terms, of the value or the benefits.

Relevant Cost Analysis:
This is another technique used widely in decisional problems. Through a cost relevance study, an
attempt is made to arrive that what is called the relevant cost i.e. the cost relevant to a particular
decision