High Tech Product-Sales Analysis

Getting Skewed in Product Sales

Subject: Sales, Metrics, End-of-Life, Forecasting

By Victor Antonio

As a past CEO in a company, I got to see a lot of what goes on behind the scenes in running a company; both good and bad.   As a CEO you are forced to be in ‘analytic mode’ the majority of the time asking questions like: Why are my sales up or down?  If they’re down, why?  Is it pricing in the market?  Is it features?  The truth is sometimes too difficult to put a fine point on it due to the mere fact that there are so many variables in what could be driving (or not driving) your business.

I had an instance where I stepped into a new CEO role with a high tech company.  After the first quarter I started noticing that the bookings (sales) were starting to decline.  And if you report to a board of directors like I did, you know that tough questions will be coming your way and you better have a good answer as to why sales are declining.

As I began to analyze numbers from the previous years, I noticed that many of the sales were either “one-offs” or “end-of-life” buys.  A one-off product is something that is developed one time for a customer, typically with a high non-recurring cost (NRE), and is never worked on again.  An end-of-life buy is when a customer puts in a final order, usually large, because the products will be obsolete and no longer available from the manufacturer, namely us in this case.

What both of these have in common, one-offs an end-of-life, is that they’re not “recurring” business.   After the order is put in, you will most likely never see an order of this type or, in the case of end-of-life, you will never see the customer again unless you have a substitute product.

So as I reviewed last year's first quarter numbers, both one-offs and end-of-life sales, were skewing the sales numbers (i.e., making the artificially high).   All those deals that happened the previous year were gone and weren’t coming back.  So I was left with my base-standard products to sell.

During a board meeting I explained the one-off and end-of-life phenomena of last year and tried to reason with them why our sales were so low this year for the first quarter.  They understood my ‘excuse’, but they were nonetheless concerned.  Note: A concerned Board of Directors is never a good thing for a CEO.

After the beating, I mean meeting, and trying to explain away the numbers, I went back to my office and started thinking about how we track our sales numbers.  I was left with trying to find out if our business was indeed growing.  Then it hit me!  I decided to take our top 20 products, which were standard products, and compare the last year’s first quarter sales with the current year’s first quarter sales and see what those numbers (i.e., delta or difference) would look like.

What I found was pretty fascinating.  Out of the top 20 products we were selling, only five of them had gone down (i.e., negative) in total quantity sold.  One was a major decline in quantity (-204), one was a minor decline (-42) and the other three (-6, -4, -2) were negligible (see Q1 Delta in the sales spreadsheet below).  But here's the even better news.  When I rolled up the sales revenues for the first quarter of this year, I was almost $360,000 (rounding up of course ;-) ahead of the previous year!  This analysis bolstered my confidence that we were doing the right things when it came to bringing the products to market.

When I showed this analysis to the board the following meeting, they quickly latched onto the point I was attempting to make in the previous meeting.  The numbers showed that our business was indeed growing.  It also showed that the overall numbers this year, when compared to the previous year, was being masked (skewed) by the one-offs and end-of-life buys of the previous year. 

Here's the high tech product analysis I put together for the board meeting.

Top 20 High Tech Product Analysis