Every business has a different benchmark of “success” and different ways to maximize profits. For instance, some businesses produce expensive but luxury products and sell them at higher profits. However, such companies don’t sell in huge numbers because their profit margin is very high, and their target audience is very limited.
On the other hand, a lot of companies make profits by selling in massive quantities. They have medium to low-profit margins, so they achieve their targets by making more and more sales. i.e., they have a higher sales volume. But the question is, why is sales volume an important figure, and how does it help businesses? If you are also curious about it, here are your answers.
What Is Sales Volume?
Sales volume simply means the total number of units a business sells over a specific time period (reporting period). For example, if a company has sold 4000 units in 6 months, then its sales volume will be 4000. It doesn’t matter whether the company makes credit or cash sales.
So technically, sales volume is a metric that focuses on two elements:
- The total number of units sold by a company/business/firm/brand.
- A reporting period/specific time period.
Now, you may think, Why Is Sales Volume An Important Figure? Well, sales volume is a crucial indicator of your business’s health because:
- It helps the investors or owners to evaluate whether the business/company is contracting or expanding.
- Sales volume is an indicator to track the performance of marketing strategies.
- It also helps in selecting the best locations for physical selling points/stores.
- It helps businesses to evaluate the performance of their sales representatives, retailers, etc.
Sales Volume Vs. Sales
It is important to understand that sales volume is totally different from sales. Here is a comparison between both.
|Basis Of Differentiation||Sales||Sales Volume|
|Definition||Sales or revenue is the total amount/revenue (in dollars or any currency) which a company makes in a reporting period/specific time period.||Sales volume simply means the total number of units that a company/business sells over a specific time period (reporting period).|
|Recording Method||The total sales value/revenue is recorded in the Profit &Loss Account/Statement Of Comprehensive Income. Technically, sales are recorded in the Balance Sheet as well as Profit & Loss Account. For example, credit sales affect the “Debtors” account and “sales” account while cash sales affect the “cash” account and “sales” account.||Sales volume is not recorded in the Balance Sheet or Profits & Loss Statement. The number of units sold is only recorded in the “Inventory” account, and the closing inventory is shown in the Balance Sheet.|
|Growth Indicator||The sales figure itself is not an indicator of success because if the expenses exceed the income/revenue/sales, the company will bear losses.||Sales volume can be an indicator of a company’s expansion because if a company has sold more units than its previous accounting/reporting period, then it is an indication of the company’s expansion.|
Sales Volume Formula and Calculation
Calculating sales volume is very simple, but it is important to know the difference between gross sales volume and net sales volume.
Gross Sales Volume just includes the total number of sales from a company.
Net Sales Volume also accounts for the sales returns and the giveaways, etc.
So, sales volume simply means the total number of units that a company has actually sold in a reporting/accounting period. If a company has sold 10,000 units in the last 12 months, then the company’s sales volume will be 10,000.
Various Sales Volume Calculations with Examples
Sales volume can be used to make other calculations such as
Sales Volume Variances
Sales volume variance is simply the difference between,
- Actual units sold by a business
- Projected sales (in units)
Here is the formula to calculate the sales volume variance
Number Of Units Sold × Profit Per Unit
Interestingly, sales volume variance does not account for the total number of units sold. Rather, it focuses on profit (amount) earned on every unit.
For example, a company had projected a sale of 500 units in a specific time period, but it ended up selling 700 units at a profit of $5 per unit. Sales volume variance for this particular period will be,
200 × 5= 1000 USD
As the company sold more than the projected units, the difference will be a “positive variance.” If a company sells lesser than projected units, the difference will be a “negative variance.”
Sales Volume Percentage
A company can calculate sales volume percentage by using different variables such as the total number of sales (in units) by
- A specific sales representative
- Or sales in a specific territory, etc.
And then divide it by total sales volume, i.e
Total Sales (In Units) By A Sales Representative Or Retailer, etc. ÷ Total Sales Volume × 100
For example, a company sold 1000 units in a specific period out of which 300 units were sold by XYZ retailer; the sales volume percentage of that retailer will be;
300 ÷ 1000 × 100= 30%
Sales volume percentage helps a company in evaluating the performance of different retailers, sales representatives, etc., and make adjustments accordingly.
Sales Volume Breakeven
A business can use its sales volume for another calculation; sales volume breakeven. Breakeven means “no profit, no loss” situation. You can calculate sales volume breakeven by dividing the projected company expenditure (for a specific time period) over the profit earned per unit.
For example, if a company’s project expenditure (for a specific time period) is $25,000 and the company earns a profit of $10 on every unit, then sales volume breakeven will be,
$25000 ÷ $10= 2500
The company needs to sell 2500 units to hit the breakeven point.
Sales volume breakeven helps companies in cutting the expenditures to avoid losses when their sales volume is on the lower side.
Tips To Increase Your Sales Volume
Sales volume is something directly attached to a company’s marketing strategies. Here are some very helpful tips to increase your sales volume.
Identification Of “Unique Features” In Your Product Or Services
If there are already so many similar products in the market, why would people buy yours? That is why you have to give them something different. You have to add unique features so that you can attract and please your customers. It is important to enlist those unique features and then reach your target audience.
Identify And Address Your Customer’s Need
Your customers do not care about “what your product is made of.” Rather, you have to tell them “what your product can do for them.” That’s why you should know your customers’ needs, preferences, likings, and limitations. You cannot make an expensive product for a low-income audience.
Win The Trust Of Your Potential Customers
There are different types of customers, and some of them are those who don’t feel motivated enough to buy your product. This usually happens due to doubts in their minds and a lack of trust. So, you need to make them comfortable, remove or clarify any objections, answer their questions, and win their trust. You can reach them with email campaigns or setting chatbots for messengers, etc.
Integrate Your Support, Sales, And Marketing Teams
Integration of these departments in your business is mandatory. That said, it is very important for these departments to share information with each other. For instance, sales teams are more aware of your customer’s pain points or their views about your brand. Your sales team can pass on this information to the marketing team so that it can develop communication plans in a better way.
Appreciate And Reward Your Loyal Customers
Loyal customers are the best assets for your business. They not only buy your products regularly, but they bring more customers (word of mouth marketing). So, you simply need to appreciate them for their trust in your brand. For instance, you can
- Create loyalty programs
- Offer them special discounts on different occasions
- Send them gifts on their birthdays, anniversaries, etc.,
- Keep them updated with promotional or informational email campaigns
- Seek regular feedback from them
Invest More In Your Advertising And Marketing Campaigns
You cannot sell an “excellent” product unless your target audience knows about it. Not only do you need to tell them, but you also have to keep reminding them as well. For that, you need to invest in effective marketing campaigns to educate your customers and generate maximum leads.
Apart from your mass-scale marketing campaigns, you can send promotional messages, special discounts or promotional offers, customized emails, SMS, web push notifications, etc. But, it is also very important to keep your customer at ease because “too much” communication can irritate people.
Acknowledge The Efforts Of Your Sales Teams And Reward Them
Your sales teams are one of the integral factors in your sales volume. They are the people who actually “Sell your products,” so hire them wisely. Don’t go for pre-written scripts because they don’t work anymore. Lookout for adaptive people and quick learners because hiring the wrong person will only waste your time and resources.
Similarly, it is equally important to nurture/train your sales force. Just as you cannot force sales; rather, you can only persuade people. Similarly, you need to be more appreciative of your sales team. Listen to their problems and try to facilitate them. If they are doing great, then show them appreciation and reward them. If they are having difficulties, talk to them and give them confidence by creating a friendly working environment.