Landing a product on shelves is far from the last step in the sales cycle — monitoring what happens to product after it leaves your warehouse is integral to maintaining an efficient supply chain and maximizing sales opportunities. Fortunately, most retailers provide data to help suppliers understand how they're performing.
But out of that weekly or daily data deluge, what are the crucial metrics? And how do they inform better strategy and execution moving forward? Data provided by retailers varies, but the following list summarizes four of the eight most important data points, and why they’re important to growing sales and optimizing the supply chain.
Check out part two next week for the other four key data points.
Unit Sales (Net)
Unit Sales (Net) is the number of units sold from a retailer to a consumer, excluding any customer returns. It’s also commonly known as sell-through or sell-out.
This metric is the best indicator of true demand because it measures when an end consumer actually buys a product, not just when a retailer places an orders, or sell-in. With that important distinction in mind, Net Unit Sales is what all brands should be using to measure performance, forecast demand, manage replenishment, and many other day-to-day sales and supply chain execution activities.
If Unit Sales (Net) are not provided directly by a retailer, it can be calculated by subtracting returns from gross sales. Ideally, you want to collect and analyze this data at the store level to gain insight into geographic preferences and allocate inventory accordingly.
Dollar Sales (Net)
Dollar Sales (Net) is the total dollar value of the products sold during a given period of time, excluding any returns. It translates Unit Sales (Net) into what is often a more useful format.
For example, it enables teams to look past prioritizing volume, and effectively prioritize based on the size of the business instead — another important difference to ensure you’re spending your time and resources on where they’ll make the biggest impact, whether it’s deciding what problems to address or what products or geographies to focus on.
Another reason Dollar Sales (Net) is important is it can be used to calculate sales price if that information is not directly provided by retailers. By dividing Dollar Sales by Unit Sales, you get an average unit retail that can be applied to anything from out-of-stocks to on-hand inventory.
Of course, if a retailer provides the actual sales price, that value should be used to translate those numbers from units into dollars. One of our most popular metrics is Future Lost Sales Dollars, which is derived by combining sales price with forecasted demand, inventory on hand, and inventory in transit.
Price is also an integral factor in understanding demand drivers, and what strategies brands can use to shape demand. If you’re thinking about running a promotion that lowers the effective price, what effect will it have on volume? Is the unit increase great enough to offset the reduced per unit margin? Analyzing historical and current price data across all your retailers can help answer these questions, guide your approach to promotions, and generate more accurate demand forecasts.
Price is also worth monitoring to ensure that retailers are adhering to your pricing policies, such as MAP (Minimum Advertised Price) or UPP (Unilateral Pricing Policy).
Retailer Cost of Goods Sold (COGS)
The Retailer Cost of Goods Sold, or cost of sales, is the amount the retailer pays for the product that it sells through. It’s subtracted from Net Unit Sales to calculate the Retailer Gross Margin — the amount that they earn from the sale of products.
Best practice for brands is to take the perspective of the retailer in your conversations with them, and that starts with understanding their margins. Buyers use this metric to gauge the value of their relationship with a supplier and make decisions, from how much to order to whether to extend shelf space or grow distribution to more stores. As you can imagine, margin is an integral component of any negotiation.
If the Retailer COGS is not provided directly by the retailer, it can be calculated by multiplying Unit Sales (Net) by the Dealer Cost. It’s worth noting that the Retailer COGS is often different from your sell-in because it is based on what is actually sold to consumers, that true demand. Since retailers can return unsold product, they do not need to take into account the cost of excess inventory (beyond holding costs), even though it has a significant impact on your bottom line.
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Next week, we’ll be sharing the remaining four crucial data points to get a complete picture of your supply chain and derive metrics like Future Lost Sales Dollars. Subscribe below to get automatically notified when it’s available!