Sales revenue should be analyzed by a variety of means. In general, there's two ways to compare sales revenue. The first is to compare revenue to the previous periods. The second way is to compare sales revenue against potential sales revenue. Now, both methods provide useful insights to the sales manager. You should begin by examining total sales volume. This is the overall sales figure, and above all, it's a useful report card on how the sales effort is doing. As we just said, it's helpful to examine this figure two different ways. First is to compare present period sales with previous periods. Now, this provides a general trend of the firm's performance, either sales are increasing or they're decreasing. It's also important to examine present period sales with sales potential. Now, this provides insight on how the company is doing relative to all the other competitors. Taken together, both figures give a full picture of sales performance. For example, imagine if a company's present period sales performance shows an increase over previous periods. Pretty good, right? Not necessarily, imagine if the same company's present period sales performance compared to potential sales revenue shows a drop. That would suggest that while a firm's sales performance increased from previous periods, that same firm actually lost ground relative to its competition, which is surely a cause for alarm. Do you see why it's useful to look at performance these two ways? In this situation, it's important that you look behind the analysis to determine the reasons why a firm's sales performance is what it is. In my previous example, perhaps pricing needs to be reexamined, or maybe competition has increased their sales force. Whatever the cause is, the idea is to use the analysis to indicate areas that need management attention. There's other ways to examine sales data. And the main way to slice and dice sales data is to break down overall sales revenue by product line, individual product, sales territory, and the individual salesperson's performance. Just like with overall revenue, it's important to examine the sales data two ways. One's by comparing to previous periods, and the second is to compare with sales potential. When looking at sales performance by product line, individual product, sales territory, and individual salesperson, you are looking for what we call a Pareto type principle. And this is where the bulk of the sales comes from a relative minority. The Pareto principle states that 80% of something comes from 20% of the effort. So the question is, do you have that kind of situation going on in your organization? Now, this might cause the sales manager to reevaluate the product lineup. Are all products performing equally well, or our sales territory? Are all sales territory performing equally well, or salesperson? Are all salespeople performing equally well? Now, there's one important caution. Looking only at sales revenue can be misleading because sales revenue is only one part of the equation. We'll shortly address selling expense analysis. And when you combine revenue with expenses, you then gain the full picture. Sometimes sales revenue might look particularly attractive. But if expenses to gain that revenue are extraordinarily high, perhaps that revenue isn't so attractive, is it? Finally, there's computer software on the market that can automate the process of sales performance analysis. In large sales organizations, sales force automation software has eliminated the drudgery of sales performance analysis.
