Are top line sales a good proxy for assessing strategy success? What do they tell us and what do they hide?
There is a tendency to look to top line sales to determine the success or otherwise of tactical and strategic initiatives, but given the number of drivers and levers within any business, particularly within the retail sector, it is often difficult to determine the impact of pulling one of these levers from the “noise”. This “noise” comes from both controllable (company level) and uncontrollable (market level) factors.
Top line sales are useful when comparing periods and providing some level of hindsight, but they do not provide the full picture on what happened, why, and if it was a good or sustainable outcome.
Company vs market level focus
Despite there being so many external factors that influence performance, the focus of management is often restricted to company level performance.
Yes, market level drivers are harder to control (as well as forecast and measure), but it does not mean that they have any less relevance when judging performance or forecasting. It is all good and well to talk up 3% sales growth compared to the prior year, but if your category is growing 5%, is underperforming the market and losing market share really a positive outcome?
Targeting sales drivers
Top line sales is a product of many different factors. Segmentation based on income types or geographic location is helpful however, we see that the leading operators in the consumer markets are looking at their “driver tree” at a more granular level to identify individual factors (both financial and non-financial) impacting sales.
Historically, measuring many of these drivers has been difficult. Now there is a range of both internal data and external data that can serve as a direct measure or a proxy to measure specific responses to initiatives (i.e. analytics available from some of the banks can often be a free and effective source).
By understanding the sales drivers, it provides significantly more detailed insight and allows you to drill into top line sales and learn. Monitoring these drivers helps measure the response to initiatives, and ensure that the initiatives are targeted at the right driver(s).