In the retail world, there are three main metrics brands focus on to measure the success of their retail execution: sales, distribution, and velocity. Sales focuses on the unit or dollar amount of the product being sold; distribution focuses on where the product is being sold; velocity focuses on how quickly the product is being sold where it is available.
When we look at velocity, there are a few different ways in which we can measure it. While the most obvious is looking at sales per store, a much better unit of measurement to base analysis off of is known as sales per point of distribution, or SPPD. It tells you the rate at which a product is moving off of the shelves in any location it is distributed to relative to the market share accessible to that point of distribution. Knowing your SPPD is critical to developing a successful product distribution strategy.
The main difference between your sales per point of distribution and your sales per store is that measuring sales per store on its own doesn’t provide you with the full picture since it only takes into account the number of stores you are selling in while disregarding the market potential, or the “size," of the stores. This means that while you may be selling in 30 different stores, all of those stores have access to different sized shares of the market, so simply calculating sales per store doesn’t give you much deeper insight. To find SPPD, we use a weighted all commodity volume (ACV) distribution rather than just focusing on the number of stores you’re selling in. If this is unfamiliar ground for you, you can learn more by reading our post on ACV distribution.
Using a weighted ACV distribution is important because it provides you with necessary insight into which locations to prioritize when it comes to distribution, by showing the “size” of the store not based on physical square footage or the number of facings, but on the amount of product that specific retailer is actually moving off of the shelves. When using it to then calculate the velocity of your own product, you may find that while you have strong distribution in a territory, your velocity is relatively low when compared to a territory where your distribution is weaker but your SPPD is much higher.
SPPD can be calculated using the following formula:
sales / % acv distribution = SPPD
By using weighted % ACV distribution in the formula, we can accurately measure based on size (or market share) of a specific store or territory. For example, if we are selling $500,000 worth of product in territory A which accounts for 50% ACV distribution, that means we have a $10,000 velocity of sales per point of distribution. Territory B on the other hand accounts for only 20% ACV distribution and we are only selling $400,000 worth of product there — however, our SPPD for territory B is $20,000.
We now know that our velocity for some reason is double what it is in territory A in territory B, and can begin investigating why. Using the insights provided by measuring SPPD, brands can determine where to invest their field efforts in order to maximize sales and improve retail execution.
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