As a business owner, you know that understanding your past performance is crucial in making smart decisions for your company.
Knowing the high and low points for your niche market, tracking your sales over time, and comparing your current data to past years are all part of successfully analyzing your company’s performance.
But do you know how often to compare your sales? And what’s the best way to get the clear data you need?
This week, Tyler’s got some tips about how to leverage tools you’re already using to make the most of your sales trend analysis.
Depending on your market, there are a few different time frames to consider when analyzing your sales trends: month-over-month and year-over-year.
Month-over-month trend analysis is great for sellers whose products are generally balanced sales-wise.
These products have no real “peak” season and come out with a pretty consistent monthly average over time. Niches that fall into this category include cleaning products, personal hygiene, and supplements.
For these markets, it makes sense to compare consecutive months because you can expect the demand for your product to stay consistent over time. If you’re seeing a huge dip in sales from, say, April to May, you can probably rule out a market fluctuation and focus your efforts on what else may have changed, like sourcing your product from a new supplier or running out of your ad budget.
Year-over-year trend analysis works best for niches that experience peak selling seasons and remain stagnant most of the rest of the year.
Products in this category include fitness equipment, electronics, toys, and seasonal clothing items like bathing suits. These sales are usually concentrated in one month or one quarter and don’t experience much fluctuation the rest of the year.
Because of the seasonality of these sales categories, a month-over-month analysis wouldn’t provide useful data. For example, if you sell children’s board games, you’re most likely going to see peak sales in December for the holidays. Comparing your December sales to your January sales won’t give you relevant data about your December performance. However, comparing this year’s December sales to last year’s will tell you how your product performed relative to a similar demand in the market.
Sales Channel and Brand
Whether you sell on Amazon, Shopify, eBay, wholesale, or a combination of many channels, separating your data will always give you more clarity into your business.
Without splitting channels, you’ll likely view your profits as one lump sum – which feels exciting! But when you separate these channels out, you may discover that your Shopify sales were through the roof this month, but your eBay sales are dismal, and you usually rely on eBay to make the bulk of your profit. Or that while you usually sell mostly wholesale, this month you had a huge Amazon boom, but Amazon’s commissions make your overall profit margin smaller than expected.
If you have multiple brands using the same accounts, it’s also important that you split your sales by brand for the same reasons as splitting by channel. All in all, viewing sales as one giant number will never give you all of the information you need.
Stefania Pilindavic, Director of Client Services at Bellavix, adds, “differentiating sales that come from each brand and/or sales channel is fundamental. It will allow you to make strategic decisions when it comes to investing. Knowing how much money and where to spend it is what ultimately determines whether your business, or parts of your business, will sink or swim.”
Analyzing your sales trends can be one of the most helpful things you do for your business. However, if you don’t use accrual accounting, you’re not getting the full picture of what your sales actually look like.
While there are smaller companies that use cash basis accounting because of its simplicity, accrual accounting allows e-commerce sellers to see exactly how much they’ve made in sales per month with the ability to except any COGS or inventory spending.
If you use cash basis accounting, your sales trend data will ultimately be skewed by factors that are out of your control. For example, as Amazon sellers know, there are some months in which the 14-day deposit cycle results in three Amazon deposits in one month.
Cash basis accounting would show that the sales of these products all occurred in the month of the deposit, regardless of when the sales were actually made. Accrual accounting offsets this issue by recording the sales when they happened, not when the deposit hits your bank.
Therefore, accrual accounting is the only way you can be sure that the data you’re analyzing is actually sales data and that it’s not being clouded by other misinformation.
All of this may seem overwhelming at first, but luckily, it’s usually easier to manage than you think.
As an e-commerce seller, there’s a good chance you’re already using some sort of dashboard software to keep track of your sales data. Many of these SaaS products also have a profitability function that will help you analyze your sales over time.
Some of our clients favor Helium 10, Seller Labs, and ManageByStats, but there are countless options out there, so shop around for one that fits all of your needs.
It may seem tempting to hold out for an end-of-month data check, since so much of e-commerce data is processed monthly. But because it’s such valuable information, you really should check on your sales data every day.
This data will inform your decisions as a CFO on things like ad strategy, product sourcing, and SKU performance, so knowing the most up-to-date information is key. Waiting too long in between refreshing your data could mean it’s too late to implement changes when they would have been most effective.
When you invest in accurate accrual accounting and a usable dashboard software, analyzing your sales trends is more accessible than you think. Find what works for your business, and check in with that data every day to help you make profitable CFO decisions.
Interested in learning more CFO tactics but not ready to outsource? Check out our DIY course.