Calculating Sales Velocity (SV)

Sales Velocity (SV) is an essential unit of measure for your inventory and product replenishment.  It is a vital inventory metric you should know or at least be able to calculate for each product in your catalog.  This one metric is used to calculate so many other replenishment values like Time on Hand (TOH), Recommended Units (Rec Units), Recommended Order (Rec Ord), Stocking Level (Stock Level), Recommended Reorder Point (Rec RPoint), etc. and the reason it is an essential unit of measure.

SV simply put; it is a calculation to determine the average units sold per day based on units sold during a previous evaluation period.  You are looking back at previous sales during a specified period and duration to project future sales.

For example:  You have a product which sold 90 units within the last 90 days.  To calculate SV, you divide the number of units sold by the number of days in the specified evaluation period to arrive at average units sold per day or as we call it SV.  In this example 90 units are divided by 90 days to determine a quotient or SV of 1.  Your average sales per day is 1 in this example.

Let’s say you are evaluating a new product which sold 30 units in the first 30 days.  Using the formula above, you would understate the SV for the product because there are 60 extra days in the evaluation period.  In this example 30 units are divided by 90 days to determine a quotient or SV or 0.33333. This is not correct since you’ve sold 30 units within the first 30 days so the SV should be 1 instead.

Communique for Marketplaces has a solution for situations like this.  All replenishment reports compare evaluation days for the period specified with the days since the first recorded sale.  Whichever date has the fewest days is used for calculating SV.

Since the evaluation period is 90 days, and the days since first sale is only 30 days, Communique would use the lesser of the 2 values to calculate SV.  Going back to the original 30 units sold in 30 days, communique has determined the number of evaluation days for this product is 30 instead of 90.  It will calculate the SV as 30 units sold divided by 30 days since first sale as 1 unit per day.  The correct SV for this product is 1 not 0.33333.

There is an additional metric which is necessary to calculate a more precise SV for a product.  Days out of Stock (DOOS) is a crucial metric which indicates the number of days a product is out of stock during a specified period.  Essentially, each day a product is out of stock is a day it cannot be sold on the marketplaces.  DOOS for a product should be used to adjust the days in an evaluation period by the number of days the product was out of stock.

Using the example above, 90 units sold in the last 90 days has an SV of 1.  What if during that evaluation period the product was out of stock for 45 of those 90 days?  Using 90 evaluation days understates the true SV for the product.  In this case the 45 DOOS is subtracted from the 90 evaluation days leaving 45.  Now we have the same 90 units sold but the adjusted evaluation days is 45.  Let’s do the math:  90 evaluation days minus 45 DOOS leaves a difference of 45 evaluation days.  90 units sold during the evaluation period is divided by 45 to determine a quotient of or SV of 2 not 1.

Using DOOS to reduce evaluation days will derive a more precise SV for product replenishment since you are using the actual days the product was available for sale.  Calculating precise SV will help reduce out of stocks and ensure you are selling on the marketplaces everyday possible.

Marketplace Reporting tracks DOOS for each product out of stock each day.  Communique for Marketplaces replenishment reports have several DOOS options to aid in providing the most precise SV possible.  We’ll discuss those in another article coming soon.

Rule of thumb on the marketplaces:  If you are out of stock, you cannot sell.

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We hope this post has been helpful.  Any questions or comments, please feel free to post.