Again the term standard price could be used instead of budgeted price in the formula above. Furthermore the total sales variance can be split into two main components. This metric looks at how close actual sales were to expected results, which can help identify areas where improvements need to be made in either processes or products. Through the variance analysis, companies depict the reasons behind deviations between standard/ideal data and actual data. For example, if your sales reps are making 40 calls per day, then just by increasing 5 calls per day for each rep, you can significantly impact your sales volume variance. While comparing actual results to budgets is valuable, forward-looking analysis is equally important.

For illustration, consider a company that budgeted to sell 5,000 units of a product. If you know the actual number of units sold compared to the budgeted units sold and the price per unit, calculate the sales volume variance using the formula below. While standard costing principles are mainly applied in the area of costs i.e., Material cost, Labour cost and overheads cost.

• If we calculate our variances correctly, the sum of Price and Volume variances should be equal to the total change in Profit Margin (excluding the impact of cost variances).
• Sales activity tracking is essential to identify why your sales reps’ performance is decreasing, and you can help them improve.
• Conversely, successful product differentiation might enable premium pricing, generating favorable price variances.

Economic downturns, seasonal fluctuations, or emerging consumer trends might explain why actual sales quantities differ from budgeted expectations. For instance, an unexpected economic recession might explain an unfavorable volume variance despite sound internal operations. Sales variance analysis examines the gap between projected sales figures and actual sales results by breaking down contributing factors. This analytical approach helps businesses understand whether deviations occurred due to price changes, volume fluctuations, or a combination of both.

• It is that portion of sales variance which is due to the difference between standard price specified and the actual price charged.
• How to explain the impact of Sales Variances on Profitability or Profit Margin of a business?
• Calculating your sales volume variance can even provide insights to parts of the company outside of sales.
• It wants to know whether its projected sales for the launch of a new product were accurate.
• It isolates the effect of overall volume changes from changes in the relative proportions of different products sold.

What is sales variance analysis? 🔗

It specifically isolates the effect of sales volume changes on profitability, rather than changes in selling sales quantity variance price. Sales volume variance measures the financial impact of selling more or fewer units than originally anticipated. This variance specifically quantifies the difference between actual sales units and budgeted sales units, valued at a standard selling price. It helps businesses pinpoint whether deviations from their financial plans are primarily due to selling a different quantity of goods or services than expected. It is the difference between actual sales volume and budgeted sales volume multiplied by standard selling price (budgeted selling price). This variance represents the effect on sales of actual quantity and budgeted quantity.

What is a Sales Volume Variance?

This figure originates from internal sales forecasts, market analyses, and strategic budget documents. The increase in standard product sales volume exactly offset the decrease in premium product sales volume, resulting in a zero total volume variance. However, the overall effect on sales value was slightly unfavorable due to price variances. Your sales team may make a favorable sales volume variance when it comes to revenue, but even so your company may not be making enough profit on each item to reach a favorable standard profit variance.

Always be active with the latest market trend and optimize your sales strategy accordingly. The revelation will help you plan your spending and suggest modifying your sales strategy to diminish fluctuations in lead flow, revenue and other influencing factors. Conduct variance analysis regularly and promptly after each reporting period. This allows management to identify and address issues before they escalate. However, if you’re new to the idea of collecting sales data and sales forecasts, then we recommend starting there and building that into a strong foundation first. Sales data provides insight into your sales process and performance, especially when coupled with a CRM’s insights dashboards.

It helps businesses optimize their sales, marketing, and production strategies to maximize future profits. Budgeted profit is calculated in the usual manner (i.e., budgeted quantity x budgeted profit per unit). Revised Standard Profit (RSP) is the re-arrangement of actual quantity in the budgeted ratio, multiplied by standard profit per unit. The sale price variance is a measure of the effect on expected profit of a different selling price to standard selling price. It is calculated as the difference between what the sales revenue should have been for the actual quantity sold, and what it was. Companies review sales mix variances to identify which products and product lines are performing well and which ones are not.

Sales managers can track the sales performance of their reps, such as calls made, deals converted/products sold, etc. But, the sales volume analysis brings us a different perspective on the business. It indicates that you have a larger audience that finds your basic plan useful for them as the company receives a new 500 subscription. So the company wishes to have a small variance only, as it will not impact the whole strategies. CRM Software with strong automation and integration features, such as Pipedrive, saves sales teams time.

Stay on Track with Sales Variance

Financial analysis indicates that sales by the basic plan made $6,000 in revenue, and sales by the growth plan made $7200 in revenue. Sales volume variance is one of the KPIs that contribute to sales forecasting. However, during the year, the company can only 90,000 units of the shirt and 100,000 units of trousers. Pipedrive enables you to customize your insight dashboards with the KPIs and sales data that best visualizes your progress and process. Managers can create a dashboard that displays overall sales alongside aspects of the sales process they are in the process of refining.

Your sales mix variance, meanwhile, also takes each different product’s profitability into account, finding out if each contributed to a favorable or unfavorable sales volume variance. Sales mix variance takes into account the actual quantity of every product sold, their budgeted price and budgeted profit. Interpreting sales variances provides insights into a business’s performance. Favorable variances indicate areas of strength, where actual results surpassed expectations.

Conversely, unfavorable variances highlight areas requiring attention and potential corrective action. An unfavorable sales volume variance may stem from issues such as increased competition, economic downturns, or ineffective sales efforts. An unfavorable sales price variance could result from competitive pressures or an inability to maintain desired price points.