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Analyze your sales by category for sales and gross profit. Each month as you total up your sales reports, you will want to see what makes up the composition. What did you sell? Which items are the most profitable? Which items are losers and are dragging your net profit down? You need to answer questions covering a number of issues with your business.
Questions to pose from your sales results each month (week, quarter):
Q What was sold? What products seem to fly off the shelves and which collect dust? Note: Get slow movers moving or off the shelf. Sell these items off to turn them into cash.
Q What was not sold? Which items were not selling? Are they priced too high, wrong color, and wrong size, out of spec, out of season, out of favor with the current market? Price them to move. Sell them to a thrift buyer. Get the cash back and try again.
Q What products or services are slowing?
Q What did buyers ask for that you do not currently have? Hopefully you have been tracking these complaints.
Every business type and industry is different so this categorization is up to you. If you sell thousands of products, but those vast numbers simply represent different sizes or different colors, break them down to say a more reasonable number. If over 50% of your sales are one product, you will, at a minimum have two categories. Hopefully you will see more categories emerge which will help you understand what needs focus and attention by your sales staff. If you are completely in doubt, break the categories into high, medium and low profit products or services and disregard everything else. You need to know how your business makes money and where you are losing money. Which waste your time and which are making you rich?
You may have one hundred categories, but the top five constitute 97% of the dollars. If this is the case, lump everything else into the sixth category “All Others” for now and proceed to analyze the others for profit. Track these sales categories exactly the same over the next few months. Only when a category starts to emerge do you want to see grow, split it out separately from the rest. The reason for this may be that this emerging category may be high margin products that seem to be more and more popular each month. Split out this category if you are going to address it. Define categories in the format that you need to take action and track your efforts.
The most important thing to do is be consistent over time and know that what you are looking at must be adjusted and altered as you grow in the future.
- Categorize your sales each month.
- Calculate your gross profit for each category. (Most important step in your analysis, otherwise, how do you know where to spend your energies to increase your profits?)
- Always watch your ‘All Others’ category to see if it is growing and needs to be further delineated and monitored.
Examples of product or sales category splits:
- Tire Store: Tire sales 48%, battery sales 28%, adjustments/rotations 18%, and all other revenues 8%.
- Bakery: Doughnuts 32%, Cookies 27%, Cakes (sheet) 22%, birthday (special) 11%, all other 8%.
- Valve Manufacturer: Categorize by size, material type (i.e. Stainless steel, carbon steel, aluminum, brass), industry where used, strength, etc.
- Restaurant: Food sales (i.e. Entrées, desserts, drinks), liquor sales, take-out sales.
