Sales trend analysis
/What is Sales Trend Analysis?
Sales trend analysis is the review of historical revenue results to detect patterns. It is a useful budgeting and financial analysis method that can indicate the onset of changes in the near-term revenue growth rates of a business. It is rarely adequate to simply plot the total sales of a business on a trend line and expect to obtain any significant information from it. Most organizations sell many products to a variety of customers, and in many regions, which means that sales can be broken down into a number of sub-groups and then reviewed on a trend line.
Trend lines can be plotted forward in time from historical data, but the sales levels indicated by these lines can be wildly incorrect, since they are based on the continuation of historical trends into the future. The following analysis of sales trends at a more detailed level yields better predictions, since a number of different trends may be revealed by this analysis.
Advantages of Sales Trend Analysis
A key advantage of sales trend analysis is that it can assist in spotting spikes or declines in sales shortly after they occur. An alert management team can use this information to either ramp up production capacity (in the case of a sales spike) or cut back on it (in the case of a sales decline). These actions can better align costs with revenues.
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Examples of Sales Trend Analyses
Here are several examples of sales trend analysis:
Sales by product. This analysis can reveal which product sales are following a steep growth path and which are stalling or declining.
Sales by region. It is customary to see the rate of growth in sales for a mature region begin to decline and then settle into a relatively tight range over time. The sales trend for a new region is highly dependent on the buildout of a distribution system, retail stores, and/or a regional sales force.
Sales by customer. This information is usually only plotted for the largest customers, to focus the attention of the sales staff. When there is a sudden drop in or flattening of the sales for a customer, the sales staff should investigate immediately to see if there is an issue with the company's relationship with the customer.
Sales by channel. A sales trend analysis by distribution channel will frequently reveal an initial spike in sales as channel usage is fully maximized, after which the sales growth rate will flatten significantly.
Sales by contract. It is possible to examine the trend of sales by contract, but predicting based on past results in this area is highly suspect. It is quite likely that sales will terminate as soon as the funded amount of a contract has been billed, with no warning appearing from a simple review of the trend line data.