Sales per million is the great equalizer. It is used to measure how fast your products are moving off the shelves in stores where they are in distribution, while controlling for distribution.
What this means is, suppose there are two markets where one is bigger than the other. Now how do you know if the smaller market sells at the same rate as the bigger market? Is the smaller market selling less because of market size, or is consumer demand weak in that area? Or, on the contrary, do products move faster in the smaller market?
Sales per million takes into account the varying Total ACVs of different markets and stabilizes them in the denominator in its formula. Let’s look at the formula and then an example:
HOW TO CALCULATE SALES PER MILLION
Sales per Million is calculated as:
%ACV distribution X (Market’s ACV ÷ 10,00,000)
‘Sales ÷ %ACV Distribution’ is the formula for ‘Sales per Point of Distribution (SPPD)’ which is used for checking velocity within a single market, or a single retailer.
Also, ‘Sales’ here can be expressed in terms of units as well as in terms of rupees/dollars.
Market ACV has to be taken in the denominator to account for the size difference in ACV. Market ACVs are very large numbers, so we denote them in millions.
EXAMPLE – SALES PER MILLION
With the theory cleared, let’s understand the concept in practicality through an example:
Let’s suppose that the Mumbai market is 3x larger than Pune. The numbers below point to the same:
Observe that Pune’s Market ACV is significantly lesser than that of Mumbai.
Now, let’s calculate Sales per Million using information from the above table:
For Product 1, Mumbai –
Sales = 65,000
%ACV Distribution = 80
Market ACV Size = 120 million
Sales per Million
= 65000 ÷ [(80/100) x (120 million / 1 million)
= 65000 ÷ [0.80 x (120)]
Similarly for all.
Pune’s sales velocity compared to Mumbai
- For Product 1, is essentially the same
- For Product 2, has some discrepancy, but not too much
- For Products 3 and 4, is very low
What’s the benefit here?
With the stakes equalized, we note that Product 3 and Product 4 are actually not doing well in Pune, and that cannot be attributed to Pune being a smaller market. The actual reason may lie in a weaker consumer demand, or lack of a suitable strategy for the city, or any other reason.
It was calculation using Sales per Million that helped us identify that Pune needs more attention if products are to do well there.
Note that one can use Sales per Million instead of SPPD (Sales per Point of Distribution) for single market/retailer calculation as well. While SPPD is easier to perform, managers who prefer uniformity in calculations do opt for Sales per million as against SPPD.
Refer to the blog on velocity for more detail on SPPD and Sales per million. Also invest 10 minutes each day to learn about ACV, %ACV, Average Items Carried, and the basics of TDP.