Sales Growth is the parameter which is used to measure the performance of the sales team to increase the revenue over a pre-determined period of time. Sales growth is an essential parameter for survival and financial growth of the company.
A good sales growth can always be used for the benefits of the employees and company in terms of providing salary raise, acquiring new assets, an expansion of the company or the product line. A negative growth is an undesirable outcome, hinting a wrong strategy or decisions.
Positive Sales Growth
When the growth of Sales numbers is more than the compared base, it is termed as positive Sales Growth. Every company always strives for positive sales growth and it is always beneficial for the financial well-being of a company to have positive sales growth.
For example, if Southwest Airlines had a sale of 2000 seats at $100 each in year 2017 and 1800 seats at $200 each in the year 2018, the positive sales growth would be of $160,000 [ 2000 x 100 = 200,000; 1800 x 200 = 360,000. Thus 360,000 – 200,000 = 160,000]. Point to note over here that majority of companies are interested only in financial growth. So even if Southwest Airlines sold fewer seats, it earned a better revenue owing to the price rise.
In the case of Apple phones, at times the number of iPhones sold may be less but even then, the company is in green light because of increased prices of the phones. Apple did not become a trillion-dollar brand by pricing their phones mediocrely.
Negative Sales Growth
When the current year earnings are lesser than previous years, it is termed as negative sales growth. It is an indicator that somewhere, something went wrong due to which the sales suffer. A continuous negative growth brings tough choices to a company and it often does not end very well.
Continuing with above example of Southwest Airlines, if 1800 seats were sold in 2018 at $100 each, the total revenue for 2018 would be $180,000 and the growth after subtracting 2017 sales would be 180,000 – 200,000 = (-20,000) Here the growth is negative $20,000.
Reasons for negative sales growth could be (and not restricted to)
- Increased competition
- The inability of the sales team
- Sudden changes in government policies
- Negativity in the market about the product
- Wrong product or pricing policies
Importance of Sales Growth
- Sales growth is an indicator that the steps taken towards policies are correct and working. A positive sales growth is a green signal which means things are being done right while a negative sales growth is a red signal which means it is time to stop and rethink.
- A positive sales growth is the objective sought by a company because it means more profits. Positive sales growth also signals that conditions are favorable in the market and the strategy or technique company is currently following is working in their favor. While getting a positive sales growth may be easy but maintaining it is a challenging task.
- A negative sales growth is a signal for company shouting for a change. Surely something is not working right which is getting negative sales growth and it needs to be changed. The company, then, has to rework on its current policies and teams and rework on next year’s targets.
- A positive sales growth also indicates an increase in market share, customer acceptance, and user base. It means the product is being accepted in the market.
- To maintain a positive growth, the company needs to adapt to the changing market. Thus, a positive sales growth also indicates making necessary changes to the current working of the company, in order to improvise and adapt the market needs and customer demands in long run.
- Various comparisons of Sales Growth can determine various approaches that a company can take to increase its sales. The type of Sales Growth analysis followed by a company determines their position in the market. A further detailed analysis like analyzing customer Sales Growth will further determine the reason for the increase or decrease in sales growth.
- Analyzing sales growth answers the ‘Why’ for the company. Why is there a growth or why is there a negative growth. Answering that question would determine the strategy to follow.
Types of Sales Growth
Sales Growth is calculated by reducing last years’ sales from current years’ sales. The percentage of growth is calculated by taking the base of last year and multiplying by 100.
Going with the above example from Positive sales growth, $160,000 is the value sales growth, while percent sales growth would be 160,000 / 200,000 x 100 = 80%.
There are various Types of sales growth which are followed by various companies. It depends on the nature of businesses and industry. Following are a few common types of Sales Growth methods:
1) Month on month Sales growth :
A month of month sales growth would calculate value growth in business every month. Taking the previous month as a base, the percent growth is calculated. It is usually followed in the FMCG industry. Month on Month growth helps the company to take immediate steps to change the strategy if something is going wrong. Implementation of the new strategy is faster in the case of this growth. Further, there are two subtypes of growth in this category:
- Month on Month comparison of the same year
- Month on Month comparison of previous year
In the first category, for example, Sales growth of June 2018 and July 2018 would be calculated but in the case of later, sales growth of June 2018 over June 2017 is calculated. Same months in different years. Comparison of the same year is useful for achieving current years targets. A consistent incremental growth over the month on month in the same year results in early achieving of annual targets. While in the second method, the comparison is done of the same months in different years. The reason behind this apple to apple comparison would be to know what went well and what went wrong and the steps needed to rectify or further enhance the growth of sales.
2) Quarterly Growth :
Here, as the name suggests, the growth is calculated after every three months. A bunch of 4 quarters is analyzed for a years’ growth. Similar to month on month, quarterly sales growth is also compared with either same quarter and with the same quarter of the previous year. Quarterly Sales Growth gives a clearer idea of how the entire year is going to turn out.
3) Half-yearly Sales Growth :
Many of the multinationals check their half-yearly sales growth comparing it to previous years’ achievements and also with the current years’ target. If more than 50% of target is achieved by mid-year, things are going in the right direction but less than that would be alarming for the company and it would take necessary steps to ensure the growth. To motivate the sales team, incentives are given every quarterly or half-yearly.
4) Annual Sales Growth :
A yearly (Financial or calendar) sales growth is compared with the previous year or years. Multiple years are compared to know the way the company is heading and to check if the growth is in sync with its vision and mission. A positive Annual Sales Growth is very important for the financial stability of the company.
5) Product Sales Growth :
Further, the sales growth is also calculated product wise. This is in case of companies with multiple product portfolio and at times there may be an overall growth but that would be because few products performed outstandingly to cover the negative growth of others. In such cases considering a detailed product, wise sales growth is helpful. The comparison for growth may be done with previous years achievements or similar products of competitors or with other products in the same company.
6) Customer wise Sales Growth :
In industries where there are limited customers, a database of customer wise growth can be calculated. A customer wise sales growth shows exactly which customer is falling behind in sales and deep diving and focusing on such customer can help revive the sales. Customer sales growth is compared with other customers or the same customer is compared over a period of time.
For example, General Electric (GE) provides service to many industries. Thus L&T, Pfizer, Samsung, P&G, Ernst and Young, which are companies and conglomerates themselves, would be its customers. So, a customer comparison for GE would be something like
Sales of L&T in Aug 2017 vs Aug 2018 – the positive growth of $30,000
Sales of Pfizer in July 2018 vs Aug 2018 – the negative growth of $15000
Sales of P&G in Aug 2018 vs Sales of E&Y in Aug 2018 – the positive growth of $15000
Such detailed analysis is very useful to focus on companies.
In the first case, it is clear that compared to the previous year, there is a growth in the customer. It could be a bulk purchase, new order or maybe this was a regular order which did not come previous year.
In the second case, similarly there is a negative growth but the comparison is done to the previous month of the same year, which could imply that there is probably sales return.
In the third case, it could be seen that one customer (E&Y) is profitable than another customer. Further knowing those reasons can help focus on the same and help the management and sales team to strategize accordingly.
7) Competitor sales growth :
This gives a macroscopic look at the larger picture. The comparison is done with other company which is a competitor and overall sales revenue generated are compared. This gives an overview of the market share along with revenue generation. A positive sales growth over competitor would mean gain in market share while a negative sales growth would be visa-versa. The company in itself may or may not be in positive growth.
Example: If Pepsi generated sales of $200 million and Coca-Cola generated sales of $310 million, it is clear that coca cola has a higher market share. But in the previous year, coca cola had a sale of $350 million and thus compared to itself, the market share has decreased but it is still more than Pepsi. Maybe a newly emerging brand has taken its share or maybe the market has slowed down.
How to get positive Sales Growth
There are few things to keep in mind to get positive sales growth:
- Product Quality : Focus on the quality of your product. A superior product, though expensive, is bound to get consistently growing sales.
- Service Quality : It’s a customer-driven market and customers require proper service – could be during the product use or after sales. A better customer service would assure long-term business and sales growth
- Eyes and Ears of the company – Sales team is the eyes and ears of the company in the market. The management should consider all feedbacks from them and should make necessary changes accordingly.
- Extra mile : Always be prepared to that extra mile than competitors if needed. Getting things done for customers will build a trust and a long-term association for regular and exponential sales growth.