How do you calculate sales variance?

2 Sales variance types

Sales variance can be further divided into two types: sales volume variance and sales price variance. Sales volume variance is the difference between your actual and budgeted sales quantities. Sales price variance is the difference between your actual and budgeted sales prices. You can calculate these variances using the following formulas: Sales volume variance = (Actual quantity - Budgeted quantity) x Budgeted price Sales price variance = (Actual price - Budgeted price) x Actual quantity For example, if you budgeted to sell 1,000 units at $100 each and you actually sold 900 units at $95 each, your sales volume variance would be: Sales volume variance = (900 - 1,000) x $100 = -$10,000 This means that your sales were lower than your budgeted sales due to selling fewer units.

Your sales price variance would be: Sales price variance = ($95 - $100) x 900 = -$4,500 This means that your sales were lower than your budgeted sales due to selling at a lower price.

3 Sales variance analysis

Sales variance analysis is the process of examining the reasons for your sales variance and taking corrective actions. This means asking questions such as why your sales differed from your budget, which products, customers, or regions contributed to the variance, and how it affected profitability and cash flow. To conduct a sales variance analysis, you need to compare your actual and budgeted sales data and identify the factors that influenced it, such as market demand and competition, product quality and availability, pricing strategy and discounts, customer satisfaction and loyalty, marketing and sales activities and effectiveness, and external events and trends. Various tools and methods can be used for analysis, such as sales reports and dashboards, sales funnel and pipeline analysis, sales mix and margin analysis, sales forecast and adjustment, or sales goals and incentives.

5 Sales variance best practices

Sales variance is unavoidable, but you can minimize its impact and use it as an opportunity to improve your sales management. To do this, you must set realistic and achievable sales budgets and targets based on your historical data, market research, and sales strategy. It's important to track and measure your sales variance regularly and consistently with reliable and accurate data sources and tools. Analyzing your sales variance in detail and in context using relevant and meaningful metrics and indicators is also essential. Additionally, create and implement your sales variance action plans promptly and effectively using SMART (specific, measurable, achievable, relevant, and time-bound) goals and strategies. Communicating and collaborating with your sales team and other stakeholders on your sales variance analysis and action plans is key, as well as soliciting their feedback and input. Finally, review and revise your sales variance analysis and action plans as necessary to learn from successes or failures.