the cost of sales visits is a

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What Is Cost Per Visit (CPV) and How To Calculate It?

Sanja trajcheva.

Marketing | May 06, 2023

As a digital marketer, you probably have a whole stack of KPIs that you’re monitoring on a daily basis. So here is another one for you… Cost per visit, or CPV.

Understanding your cost per visit can help you make sense of how much your advertising is costing you in total. It can also help you identify how effective your ad campaigns are and can even help you spot click fraud .

Sounds super useful, right? OK, so first of all, what is CPV?

Table of Contents

What is Cost per Visit?

The cost per visit (CPV) to your site or business looks at how much you’re paying for your advertising and how much a single visit costs.

This can be applied to both website clicks and physical visits or appointments at your location. Generally, it is used to analyze your PPC campaigns, but once you understand how to work out the cost per visit, you can apply it in different ways.

Unlike  ROAS  (return on ad spend), which focuses on how much it costs to win one customer, CPV looks more at how much you’re paying for an individual visit. It’s a useful way to work out how effective your ad campaigns are across multiple platforms and strategies.

Cost per visit is also not necessarily a metric used by the ad platforms, so you won’t see it in your dashboard. It is, however, quite useful to know if you want to tally up the results of your ad spend.

Do I need to know Cost Per Visit?

Most businesses are using a mixture of advertising methods online, which can include CPC (cost per click),  CPA  (cost per acquisition), and CPM (cost per thousand impressions).

And running digital marketing ad campaigns usually means using multiple platforms. You might be using Google Ads to target the bottom-of-funnel (BoFu) market and sell. But you might be using Facebook Ads to increase site visitors and boost your brand visibility.

If you’ve ever looked at your spreadsheets or advertising dashboards and scratched your head, understanding your cost per visit can help make sense of all of your combined metrics.

How to work out Cost Per Visit (CPV)

Let’s say you want to work out your cost per visit in a weekly period.

The first thing to do is tally up your ad spend on all platforms that you’re using and the clicks or site visits that came from each of them.

As we can see from the chart above, our example business has spent $650 on marketing in a week. From that, there have been 125 site visits.

$650 / 125 visits = 5.2

That makes a total of around $5.20 per site visit.

To calculate cost per visit (CPV):

Total Cost (divided by) Total Visits = Cost Per Visit (CPV)

In this instance, we’re not looking at the CPA or ROAS, which will return different figures.

Now, another way to look at your cost per visit is to look at the total site visits you have in a period and divide that by all of your marketing efforts. This might also include the time spent to create organic content, the costs of any freelancers or agencies you’re using to do keyword research or manage your ads, and even the software you pay for to help you do the job.

This might look something like:

• Paid ad spend $650
• In-house marketing team $300
• Freelance contributor $150
• Software package $25

And let’s say you have 800 unique views on your site per week from all sources, including organic, paid search, and your paid social campaigns.

$1125 / 800 = $1.40 per visit

Understanding CPV

With the cost per visit, you can then apply your cost per acquisition or return on ad spend and see where your marketing efforts are most successful.

Of course, those organic results might not seem the most cost-effective in the short term, but they are probably (or should be) part of your overall content marketing strategy.

When looking at your paid search results, you can investigate how effective your PPC ads are at attracting the right kind of site visitors. Looking at that cost per visitor, you can then analyze things like:

• Time spent on site or bounce rate
• Pages viewed
• Average spend per customer
• Lifetime value of a customer
• How PPC fares as a percentage of your marketing spend

What’s in a click?

Each click has a value, even if it’s from an organic source. At some point, you’ve paid money or spent your time (which also has value, right?) to create a clickable resource.

Eventually, with some good marketing strategy, the bulk of your sales and site visitors should come from organic search results. Although not ‘free’ traffic (again, you have paid for it), it doesn’t cost per click or per view.

But pay-per-click is still one of the most effective ways of driving traffic to your business and getting on top of the SERPs.

When it comes to clicks on paid search ads, the issues of click fraud and ad fraud become key. Of those site visitors, how many of them are not genuine potential customers?

Understanding how much click bots or malicious business competitors can cost your business can be an eye-opener for many business owners.

According to research from the University of Baltimore, the volume of click fraud averages around 14% globally. And from our own data, we’ve seen this rising to over 60% for some particularly competitive industries.

Yes, that means that 60% of paid clicks on some ad campaigns are not even real customers (or even people), which in many cases also means a higher cost per visit (CPV).

Check out how much fraudulent traffic there is on your PPC ads with the free trial of our industry-leading anti-click fraud software.

As an experienced content writer, Sanja is a firm believer in the power of storytelling to inspire and educate audiences. In her role at CHEQ, Sanja fearlessly tackles the challenges of the fake web – navigating through fake traffic, ad fraud, and click fraud. When not writing, she enjoys exploring new tastes and planning her next adventures.

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What is Cost of Sales? Definition, Formula, & Examples

• Oliver Munro
• 10 months ago

• August 29, 2023

The cost of sales is an inventory accounting metric that measures the accumulated costs in getting finished goods to market. It represents your true cost of creating and selling a product.

This article will help you understand the cost of sales formula, how it can help you calculate profitability, and the steps you must take to reduce the cost of sales in your business.

What is cost of sales?

Cost of sales is the accrued total of all the costs of supplying a product. It only relates to those products you have sold. The cost of sales metric is most commonly used in the retail and eCommerce industries, whereas manufacturing businesses typically calculate profitability using the cost of goods sold formula instead.

Cost of sales and profitability

Cost of sales is a key indicator of profitability. It measures the cost of raw materials, labour, and overhead costs associated with producing finished goods .  A high cost of sales doesn’t always imply lower profit margins .  But if your costs of sales are disproportionate to your revenue, you should consider ways to manage your costs and improve profitability.

Cost of sales vs cost of goods sold

The difference between the cost of sales and the cost of goods sold (COGS) is in how your changes in inventories are managed. Both accounting approaches achieve the same result because your income and expenses will differ by equal amounts.

COGS measures the cost of producing a product from raw materials and parts. The cost of sales is the total cost of producing goods and services. However, those service providers who do not offer goods for sale will not include the cost of sales on their income statements.

Cost of sales vs operating expenses

Cost of sales and operating expenses are both important measures in assessing the profitability of a business. However, there are key differences in what they measure.

Cost of sales directly relates to a product or service. On the other hand, operating expenses support the whole business.

Costs that contribute to the production of a product or service – for example, raw materials, packaging, and the wages of employees directly involved in the delivery of goods – can be measured using the cost of sales. In contrast, operating expenses measure how much you spend on overhead costs such as rent, insurance, utilities, and office supplies.

While your cost of sales breaks down more readily identifiable expenses, your operating expenses look at general overall costs that are harder to classify.

Cost of sales formula

The cost of sales formula combines all the raw materials, labour, and direct purchases necessary to produce goods for sale. It includes employee wages and any shipping costs of the finished product.

Use this formula to calculate the total cost of sales in your business:

Beginning Inventory + Purchases – Ending Inventory = Cost of Sales

As an example, let’s say you have $35,000 in on-hand inventory at the beginning of your financial quarter. Throughout that quarter you spend $15,000 on raw materials, wages, and delivery costs.

With $7,000 worth of inventory left at the end of the period, you calculate the cost of sales for the period using the cost of sales formula:

$35,000 + $15,000 – $7,000 = $43,000

Total Cost of Sales = $43,000

How to calculate cost of sales

The main challenge with calculating the cost of sales is understanding which of your outgoings relate to your cost of sales. A simple way to determine what to include in the cost of sales is to look at the expenses you are currently paying.

For example, you could still manufacture your products if you stopped paying for marketing activities . Marketing expenses, therefore, should not be included in your cost of sales formula.

But if you stopped paying for, say, a plastic button that’s needed to produce a finished good, then you would be unable to get the product to market. That means this expense should be included in your cost of sales calculation.

Cost of sales combines all the costs associated with selling goods, from production through to retail.

What’s included in cost of sales?

What is and what is not included in your cost of sales calculation will largely depend on your business, the industry you’re in, and the types of products you are producing. If any cost is not directly or indirectly part of your production, it should not be included in your cost of sales.

Expenses that are often included in cost of sales:

• Raw materials required for production
• Salaries and wages for production staff
• Software licensing, website hosting fees, and cloud storage costs that are not part of your operating expenses
• Product packaging and packing material
• Storage costs incurred for storing both raw materials and finished goods

Expenses that are typically not included in cost of sales:

• Operating or fixed costs like rent and utilities
• Product development costs
• Commissions for your sales team
• Specific overhead costs not directly tied to production
• Administration costs
• Advertising and promotion

In retail, the cost of sales will also include any payments made to manufacturers and suppliers for the purchase of merchandise that you have sold.

Cost of sales examples

Cost of sales and COGS are used in different ways depending on the industry a business serves. Let’s look at some cost of sales examples across common sectors.

A manufacturer will determine cost of sales or COGS by calculating all the manufacturing costs that go into producing goods. This can mean adding up production staff wages, raw material costs, and any purchases made that directly impact the manufacturing of products.

Once a manufacturer knows their cost of sales , they can investigate how much the market is willing to pay for their products and set a strategically competitive price that maximises profitability and sales.

Small business

If a small business purchases goods from a wholesaler, adds a personal touch to them, and resells the product then you could calculate the cost of sales by combining those purchase costs with the costs to prepare the goods for sale. For example, a small business’s cost of sales calculation could include the purchasing cost of inventory and shipping from its suppliers along with the costs to customise and repackage the received goods.

Ecommerce and retail

In a retail or eCommerce business , inventory is typically purchased from a wholesaler or manufacturer for resale, either in a retail outlet or through an online store. The cost of sales will include the purchase price, any storage costs, and the cost of shipping goods to the customer.

Cost of sales accounting

Cost of sales accounting calculates the accumulated total of all costs you use to create a product that is sold. The cost of sales is a key performance indicator of your business. It measures your ability to design, source, or manufacture goods at a reasonable price – and can be compared with revenue to determine profitability.

If you’re using the periodic inventory method to calculate your cost of sales, then the costs of goods purchased are typically debited to your purchase account and credited to your accounts payable account.

Your balance of purchases account, at the end of the reporting period, is moved to your inventory account. This is shown as a debit to your inventory and credited to your purchases account. The result is a book balance in your inventory account that equals your actual ending inventory amount.

This variance is then written off as your cost of goods sales. It is debited to your cost of goods sold account and credited to your inventory account.

If you’re using the perpetual inventory method to calculate your cost of sales, then the cost of sales or COGS account increases as the product gets sold. In other words, the cost of sales is recorded with every sale in separate journal entries , rather than at the end of the period in a single entry.

Is cost of sales an expense?

Yes, your cost of sales is an expense. It is neither what your business owns (an asset), nor a liability that you owe. Cost of sales is directly related to the amount of money your business spends to acquire or produce a product you sell.

Cost of sales is one of the most important business expenses to consider when calculating profitability.

How to minimise your cost of sales

The purpose of reducing your cost of sales is to increase overall profitability within the business. The less it costs to produce goods, the better your profit margins.

There are several ways to minimise the cost of sales, including:

• Automate your manual processes
• Reduce wasteful activities
• Remove unnecessary product features
• Negotiate with suppliers for better pricing
• Optimise your inventory management
• Improve your warehouse logistics
• Invest in the growth of your employees

Let’s break these down.

1. Automate manual processes

Automation helps to lower the cost of sales while increasing your sales and productivity and supports business growth. Around 30% of sales tasks are automatable using current technology.

Some of those tasks include:

• Order management
• Lead identification
• Sales and operations planning
• Analytics and reporting

Review your entire sales chain to identify areas that will benefit from automation.

Implement chatbots to help generate leads, increase your sales, and free up your sales team’s time. Chatbot technology offers substantial benefits to both your business and your customers.

Analytic tools can be utilised to increase customer acquisition and engagement, create a more personalised customer experience, and reduce customer churn.

2. Reduce waste

Look for opportunities to reduce physical waste and inefficiencies in your production processes. This includes raw material waste, shrinkage, and damaged or stolen goods.

If your material waste is high, look at ways to redesign your manufacturing process to reduce this waste.

Operational lost time or shipping process delays can also adversely affect your cost of sales.

Scrutinize all areas of your supply chain to identify instances of waste. Implement lean manufacturing methods to reduce or eliminate waste where possible.

3. Remove unnecessary product features

In some cases, it may be possible to reduce the cost of sales by changing the ingredients, components, or materials used to produce your products.

It’s important when removing product features as a cost-cutting measure that you are not removing product qualities that your customers value.

Research your customers’ reasons for purchasing your products. What are the features and benefits they look for? Is it low cost, unique features, or high quality?

When you establish which product features are important to your customers, you can selectively scale back those elements they see little value in.

4. Leverage suppliers

Negotiate with your suppliers to source better prices or discounts on bulk purchases.

In leveraging suppliers, you can take advantage of economies of scale that offer cost savings proportionate to increased production or sales. Take care to ensure any savings on bulk purchases are not lost to increased storage charges or the additional carrying costs associated with holding large amounts of inventory. 

You can also work with suppliers to streamline purchase order cycle times to improve inventory lead times. This enables you to order less and frequently reduce inventory costs.

5. Optimise inventory management

Inventory ties up working capital, reduces cash flow and costs money the longer you keep it in storage. In some cases, goods can perish or become obsolete before they’re able to be sold.

It’s important to carefully manage your inventory to lower your cost of sales and increase profitability. Inventory management software and an optimised warehouse can help you efficiently manage and lower the cost of inventory.

In addition to these benefits, inventory software helps you make smarter purchasing decisions based on historical data and demand forecasts.

6. Improve warehouse operations

Organised warehouses and workspaces aid productivity because staff are not wasting time searching for tools and equipment.

Create an organised floor plan that is easy to navigate and supports operational flow and processes. Expand the footprint of your warehouse by making use of vertical space.

Ensure staff can access it easily and safely with the right equipment for efficient storage and picking. Standardise bins and keep selves neat and orderly. Label everything.

Production, employee, and storage expenses all represent aspects of your cost of sales; an efficient warehouse can reduce the cost of sales by improving productivity.

7. Invest in your employees

Employee labour costs represent a significant portion of the cost of sales. While the automation of manual tasks can minimise some of these labour costs, investing in employee development and upskilling their technical skills will save you money in the long term.

Disengaged, unhappy, and undervalued employees result in high staff turnover. High employee turnover will cost your business lost time, operational problems, reduced productivity, and the expense of recruiting and inducting new staff.

Training and development of your staff resources can drive value through greater productivity, performance, and increased customer service. Invest in your staff to reduce your costs and achieve higher profits.

Accurately track your cost of sales in real time with Unleashed

Keeping track of all the direct and indirect costs that go into selling a product manually is a time-consuming process.

Worse, it’s prone to producing errors that can hurt your productivity and cut into your bottom line.

Unleashed provides automated inventory management software that automatically tracks and records all your purchasing, sales, and production costs as they occur. It allows you to manage your inventory on the cloud while removing inefficiencies from your key workflows.

To learn more about how Unleashed helps you accurately track cost of sales, follow these next steps:

1.  Watch an inventory software demo . Learn how automated inventory software enables you to track all your crucial product costs in real time, slashing hours of admin time and ensuring accurate financial reporting.

2.  Sign up for a free 14-day trial . Discover first-hand the ways Unleashed can help you streamlining reporting processes and optimise your inventory management with a risk-free two-week trial of Unleashed.

3.  Chat with an expert to assess your needs . Are you ready to take your business to the next step? Lock in a free chat with one of our friendly in-house experts for an honest discussion about improving your operations and cost tracking.

Article by Oliver Munro in collaboration with our team of specialists. Oliver's background is in inventory management and content marketing. He's visited over 50 countries, lived aboard a circus ship, and once completed a Sudoku in under 3 minutes (allegedly).

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Where Thought Leaders go for Growth

The Importance of Customer Visits: Tools & Tips

Table of contents, what are the benefits, who does it concern, and why, why is customer attraction important, what is a customer visit program, 1- planning visits, 2- provisioning excellent customer service during visits, 3- personalizing the customer visits, 4- and… share feedback after the visits, how to simplify the customer visit, customer visits: in summary.

Nowadays, with people being so connected, companies often or completely forget the importance of customer visits. A digital tool can show you statistics, but can it read the true interests or intentions of a client?

The answer to that is most likely… No, it doesn’t.

Usually, the more customers you gain or have to deal with, the more it’s essential to keep a close relationship with them.

And wouldn’t you like to be considered more than data or a click on an ad? I’m pretty sure you would!

Let’s unveil the importance of customer visits and how to plan it efficiently. 👇

Why are Customer Visits Important?

Customers are constantly being solicited by your sales team or your competitors.

In fact, they are likely to appreciate talking with a salesman who is not trying to sell goods, and instead, someone who is invested in hearing about their problems and preferences.

By meeting with them:

• It helps customers feel appreciated ;
• It creates a certain bond .

👉 Meeting clients in their environment shows you how they integrate your software into their workday. And by doing so, you’d be able to study their behavior and show them your support.

• It detects needs or problems that would not have been obvious on the telephone or by e-mail;
• Company workers will feel more motivated as they will get honest and personal feedback on their product or service.

You must keep in mind that you are not the only one soliciting customers. It’s a competitive market, so getting as much personal information as possible will keep you ahead of the game.

And eventually, seeing their smile and satisfaction in person can be quite a reward. 🏆

You might want to bring your whole team such as the marketing and analytics members to the meeting, but remember: the goal here is not to sell, but to listen and be understanding.

Therefore, it should only concern the most profitable customers.

Here is how to do it:

• Refer to your CRM tools to highlight via the sales dashboard (or cross tables) those who have ordered the most often or with the best average basket;
• Profile your customers . For instance, by using a progression metric, which assumes that the most interesting customers are those who have the best potential (good contact, several exchanges to date), but who have not yet made many purchases.

In a logic of cost reduction, there’s a strategy to take into account: the optimization of b2b sales funnel .

👉 You organize your customer visits by geographical area , and link them to lose as little time as possible between each appointment.

This method can only boost your notoriety amongst customers and build customer loyalty. Once it is done properly, your efficiency to read and better understand the customer is increased.

💡 Our tip: Check out our lead generation in digital marketing and lead conversion to know how to best generate and convert lead into customer !

• The Best B2B Sales Lead Generation Strategies
• The 7 Fundamental Steps of a B2B Sales Cycle

Customer attraction is vital for:

• business growth ,
• brand development ,
• and maintaining a competitive edge .

In fact, it ensures a steady revenue stream and promotes brand awareness through word-of-mouth, enhancing the company’s reputation. ☝️

Also, effective customer attraction strategies enable businesses to:

• lead in competitive markets ,
• drive innovation ,
• and secure long-term viability .

In essence, attracting customers is foundational to not only immediate financial health, but also to the sustained success and adaptability of a business in a dynamic market environment.

Customer visits provide an opportunity for interaction between the parties involved to reach a settlement.

Discussions may include:

• advertising,
• and 'team' approaches to visits.

Strategizing is very essential and should not be omitted! It gives you a true insight into a customer’s perspective.

Customer visits can be divided into four classes:

• Customer visits with the senior management team: owners, presidents, general managers, and so forth;
• Customer visits with the sales managers;
• Customer visits with a team of two or more people;
• Customer visits with an individual: a member of the sales management team, or a salesperson, for instance.

4 Strategic Steps for Effective Customer Visits

Preparation is key: it helps with your confidence and organization.

Scheduling the Visit

The first step is to make an appointment with the person or people in charge:

• Ask them when they will be available and set a time and date;
• Make sure that each party is aware of what the meeting will be about beforehand;
• Speak to them about confidentiality, and that everything you report back to your team will be done with their consent.

Preparing Your Approach

On your end, if you haven’t already, keep studying your customer :

• See what has changed in the use of the product from now up until the day of the meeting;
• Study their company! You could visit their website to learn more about their products, services, and their world.
• Build a client portfolio , or a persona.

Organizing Your Team

At the same time:

• Make sure each attendee on your team knows their role;
• Review and reread your files as well as the history of exchanges and purchases, if applicable, to have all the keys in hand;
• Do not forget to have a backup plan ! It shows your professionalism in case something goes wrong.

Pay attention to CAC customer acquisition cost and customer lifetime value calculation to balance your fee.

Once every concerned individual is informed about the meeting, this is where you get into the gist of things.

Start with light conversations before getting to the purpose of the meeting.

💡 Our tip: Make them feel comfortable , as you do not want to seem too keen to get down to business.

Keep in mind that this is a mutual agreement . That way, the customer, or client, won’t run away.

Topics to Come Up With

• pay attention to them,
• try to find the best solution to their problem;
• ask open-ended questions,
• allow the customer to take the lead and talk;
• Focus on who uses your products or services the most. And if so, how often and what are the main reasons?
• Once you have determined their necessity for said products and services, ask them what they would like to be changed . Are there any bugs?

Good Practices

• Above all, take notes! Whether the information seems useful to you, this data might be useful later or will speak to one of your colleagues.
• Don’t leave the room without summarizing what was said and mentioning the next steps you will take to ensure their needs are met.

Many benefits can come out of this! 🧐

• Guide to Business Negotiation: Clinch Deals in 6 Steps

Personalizing customer visits and interviews is a powerful strategy to:

• enhance the customer experience ,
• increase engagement ,
• and ultimately drive sales and loyalty .

Data-Driven Personalization

First, you should use your collected data and analyzes to come up with customized greetings and recommended products or services.

👉 Using CRM systems or AI automates data management and allows for personalized recommendations.

Customized Offers

Secondly, you could create personalized offers and loyalty programs that offer exclusive deals based on customer history and preferences. Ultimately, you could adjust the physical or digital environment to suit individual customer preferences, enhancing their overall experience.

By personalizing the visit, you will enhance satisfaction and encourage loyalty! 🤝

In one word: debrief .

Review what happened:

• What did you learn?
• Were some of your questions answered?
• Did you reach your goals?
• What was the most helpful?

Following-up

Then follow up with the customer and your team !

💡 Our tip: Send the customer a thank-you note , so they can know you appreciate the time spent together and the feedback they have given you.

It doesn’t need to stop there, as keeping a close relationship and giving your customer or client the best experience is not a daily process. It’s a constant and ongoing contact with them , which is why your next steps should involve:

• Making a new appointment;
• Drawing up a diagnosis or a commercial proposal ;
• Preparing for the negotiation based on the customer's specific requests:
• Identifying trends in the marketplace : If a number of your customer visits reveal the same concern, this may be an area that you need to focus on;
• Communicating important elements to the relevant teams, e.g., the after-sales team.

There are interesting tools for note-taking and customer visit reports, as it allows you to create any business document, tailored to your image.

👉 Your documents are unified and 100% dematerialized , which is best for consistency. Also, centralization benefits the whole company, especially the sales representatives in the field, who no longer lose any of their work.

Depending on the different email scenarios configured:

• The managers receive a summary and the customer a recap by email;
• If the visit is successful, you can even have the customer digitally sign an order in the same breath!

By using flexible and customizable software, your sales representatives have all the necessary tools at their disposal on their smartphone or tablet:

• Customer files are updated in real-time ;
• Connection to your ERP ;
• Generation of sales documents (quotations, order forms, invoices);
• Access to order history , stocks , and your catalog .

Have you tested any digital tools for your customer relations? 🤔

• Which is the best CRM for me?

💡 Here is one last piece of advice: Always look to the future , but do not forget that customer satisfaction is crucial to a company’s success.

Nothing beats a face-to-face meeting as hidden gems can be said. And to take advantage of this meeting, help yourself with the appropriate tools .

Take the time to know who you are catering to, as customers buy when they feel loyalty and consideration .

Great relationships lead to great opportunities !

Articles on the same topic

• The importance of B2B sales funnel: what, why and how?
• Customer Acquisition Cost (CAC)- One of Marketing's Most Important Indicators

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Cost of Sales: Meaning, Formula and Calculation

Cost of Sales, often referred to as Cost of Goods Sold (COGS) in product-based companies and Cost of Services (COS) in service-based companies, represents the direct expenses directly associated with producing or delivering a company’s goods or services. They typically include expenses such as raw materials, labor, manufacturing expenses, and any other costs that can be directly attributed to the production or delivery process.

By calculating and analyzing Cost of Sales, businesses can assess their ability to manage production costs, control operational efficiency, and set appropriate pricing strategies to achieve sustainable profitability.

What is Cost of Sales?

Cost of Sales is a financial metric that represents the direct expenses incurred by a company to produce goods or deliver services that were sold during a specific period. Depending on the industry or company preference, Cost of Sales is alternatively labeled as Cost of Revenue. Product-based companies often refer it as Cost of Goods Sold (COGS), while Service-based companies may refer to it as Cost of Services (COS).

Cost of Sales is a key component of the Income Statement. It includes the expenses directly associated with the production of goods or the delivery of services, such as raw materials, labor, manufacturing costs, and other directly attributable costs. It reflects the true cost of creating the products or services that generate revenue, and it is used in the calculation of gross profit.

Cost of Sales Definition

Cost of Sales is the measure of the direct costs associated with producing or delivering the goods or services that a company sells to generate revenue.

Cost of Sales is also known as Cost of Revenue. In product-based companies, it is often referred to as Cost of Goods Sold (COGS), while service-based companies may use the term Cost of Services (COS).

What is Included in Cost of Sales

Expenses included in Cost of Sales can vary significantly depending on the industry and the specific nature of a company’s business activities. This flexibility in determining Cost of Sales components is due to the unique cost structures and operational characteristics of different businesses

In product-based businesses, Cost of Sales or Cost of Goods Sold (COGS) includes the costs of acquiring or producing the items that the company sells. For example, for a smartphone manufacturer, COGS would encompass the cost of materials, direct labor, and manufacturing expenses required to produce each smartphone.

In service-based businesses, Cost of Sales or Cost of Services (COS) includes the costs related to providing the services offered by the company. For example, a consulting firm’s COS might include the salaries of consultants, travel expenses, and any other direct costs associated with delivering consulting services to clients.

Direct Costs : Cost of Sales includes only direct costs that are directly tied to production or service delivery. These costs are necessary to create the products or services that a company sells.

Excluded Costs : Cost of Sales does not include expenses that are not directly tied to production or service delivery. For example, Operating Expenses like administrative salaries, marketing expenses, rent for office space, and Non-operating expenses like interest expenses are not included in Cost of Sales.

Cost of Sales Formula

The formula for calculating Cost of Sales can be expressed differently for product-based companies and service-based companies.

For Product-Based Companies (Cost of Goods Sold or COGS)

Cost of Sales or COGS = Opening Inventory + Purchases and Direct Costs – Closing Inventory

Opening Inventory : The value of inventory at the beginning of the period. Purchases and Direct Costs : The total cost of materials, labor, and other direct costs incurred during the period. Closing Inventory : The value of inventory at the end of the period.

For Service-Based Companies (Cost of Services or COS)

Cost of Sales or COS = Direct Labor Costs + Direct Expenses

Direct Labor Costs : The total labor costs incurred directly for providing services during the period. Direct Expenses : Other direct costs incurred for service delivery, such as materials, supplies, and other related expenses.

Cost of Sales and Operating Expenses

Cost of Sales and Operating Expenses (OpEx) are both essential components in a company’s income statement, but they serve different purposes and represent distinct categories of expenses.

The categorization of expenses into Cost of Sales or Operating Expenses (OpEx) is dependent on the industry and the nature of a company’s business activities.

As we already discussed, Cost of Sales represents the direct costs associated with producing the goods or services that a company sells during a specific period. These costs include expenses directly related to the production process, such as raw materials, labor, manufacturing supplies, and any other direct costs.

On the other hand, Operating Expenses represents the indirect costs incurred in the day-to-day operations of a business. These expenses are not directly tied to the production of goods or services but are necessary to run the company efficiently. Common examples of operating expenses include salaries and wages of non-production staff, rent, utilities, marketing, administrative costs, research and development expenses, and depreciation.

Cost of Sales is incurred when a company produces and sells goods or services. These costs are tied to the specific period in which production occurs.

Operating Expenses (OpEx) is ongoing and occurs throughout the operation of the business. These expenses are incurred regardless of the level of production or sales.

While it’s common practice to present Cost of Sales separately from Operating Expenses in the Income Statement, some companies may choose to include Cost of Sales as part of their Operating Expenses.

In some cases, especially in service-based industries, where the line between direct production costs and operating expenses is not as clear-cut as in manufacturing, the distinction between Cost of Sales and Operating Expenses may be less defined. This can lead to companies grouping these expenses together for simplicity and clarity in their financial reporting.

Cost of Sales directly relates to the production of goods or services and is considered a core expense. It reflects the costs incurred to create the products that generate revenue.

Operating Expenses (OpEx) includes various expenses associated with the day-to-day operation of the business. These expenses are necessary to support the core activities but are not directly tied to production.

How to Calculate Cost of Sales

The calculation of Cost of Sales involves summing up all the direct costs associated with producing goods or delivering services that were sold during a specific period.

Product-Based Companies (Cost of Goods Sold or COGS)

Let’s say a company’s opening inventory was $50,000, purchases and direct costs were $200,000, and closing inventory was $30,000.

Cost of Sales or Cost of Goods Sold (COGS) = Opening Inventory + Purchases and Direct Costs – Closing Inventory

COGS = $50,000 + $200,000 – $30,000 = $220,000

Service-Based Companies (Cost of Services or COS)

Let’s say a service-based company’s direct labor costs were $80,000, and direct expenses were $15,000.

Cost of Sales or Cost of Services (COS) = Direct Labor Costs + Direct Expenses

COS = $80,000 + $15,000 = $95,000

Examples of Cost of Sales

Let’s consider a fictional electronics manufacturing company that produces mobile phones, tablets, personal computers (PCs), and other electronic accessories.

Here’s a breakdown of possible expenses:

While calculation Cost of Sales, we have to consider only the direct expenses associated with producing goods, i.e., the direct costs in producing mobile phones, tablets, personal computers (PCs), and other electronic accessories.

Cost of Sales = Raw Materials + Labor Costs + Manufacturing Overhead + Packaging Costs = $1,500,000 + $400,000 + $300,000 + $50,000 = $2,250,000

In the above example, Employee Salaries, Marketing and Advertising, Distribution Costs, and Research and Development (R&D) are Operating Expenses (Indirect Costs of Running the Business).

In the above example, Interest Expense and Tax Expenses are Non-Operating Expenses (Not Directly Related to Core Business Operations).

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Cost of Sales: Definition, Formula, and Examples

Learn the definition of cost of sales and how it is used to capture key production expenses.

What is Cost of Sales?

A company’s cost of sales refers to the costs related to producing a good or service. The cost of sales will include direct labor costs, direct materials costs, and any production-related overhead costs. The cost of sales is located near the top of a company’s income statement and is also sometimes referred to as the cost of goods sold (COGS).

Example direct labor costs:

• Wages for manufacturing assembly line employees (manufacturing companies)
• Wages for staff performing direct service (service businesses)
• Sales commission for sales staff (service businesses)

Example direct materials costs:

• Rubber used to make car tires
• Plastic used to make sunglasses
• Steel used to make bicycle parts

Example production overhead costs:

• Rent for factory or production facility
• Insurance cost for production facility and equipment
• Wages for maintenance workers and other supporting production workers

Cost of Sales Formula (Manufacturing Businesses)

Cost of Sales = Beginning Inventory + Purchases - Ending Inventory

A manufacturing company will track its inventory in the current assets section of its balance sheet. Once inventory is sold, the revenue collected from the inventory sale and the cost associated with producing the inventory is recognized as revenue and cost of goods sold or cost of sales on the income statement.

Cost of Sales Formula Inputs:

• Beginning inventory: Value of inventory from the start of the year (end of last year).
• Purchases: Expenses required to produce additional inventory in the period.
• Ending inventory: Value of inventory at the end of the year.

By tracking the change in inventory, the manufacturing business can correctly allocate the amount of production costs associated with the goods sold in the period. The production costs associated with goods manufactured but not yet sold are not recognized as an expense on the income statement until the goods are sold.

Cost of Sales Formula (Service Businesses)

Cost of Sales = Value of time spent on all projects - Value of time spent on incomplete (work-in-progress) projects

A service business will typically not have the traditional product inventory found in a manufacturing or retail company. However, longer-term service projects that are not yet complete can be treated as “inventory” or really a service not yet delivered to the customer.

With this in mind, you can use similar “inventory” tracking logic to deduct the value of time spent on incomplete projects from the value of the total time spent on projects in the period to calculate the cost of sales associated with the services delivered in the period.

Example Cost of Sales (Manufacturing Company)

Assume SnowTown T-Shirt company has $8,000 worth of unsold t-shirts leftover from the end of last year. The clothing company then spends another $80,000 in direct labor, direct materials, and manufacturing overhead to produce more t-shirts during the year. At the end of the current year, the company is left with $10,000 worth of unsold t-shirts.

What was its cost of sales during the period?

• Beginning inventory = $8,000
• Purchases = $100,000
• Ending inventory = $10,000
• Cost of sales = $8,000 + $100,000 - $10,000 = $98,000

Example Cost of Sales (Service Business)

Assume JTB Consultants paid its consulting team $60 per hour for spending 5,000 hours working on projects for consulting clients in the current year. In the last month of this year, the team spent 100 hours on a project that won’t be completed until the following year.

• Total value of time spent = $60 * 5,000 hours = $300,000
• Total value of time spent on incomplete projects = $60 * 100 = $6,000
• Cost of sales = $300,000 - $6,000 = $294,000

Real Company Example: Nike Cost of Sales

Nike, the giant footwear and apparel brand, is an example publicly traded company that uses the cost of sales in its financial statements posted on its annual 10-K report .

Although the company isn’t required to show its exact cost of sales inventory calculations, you can often review the ending inventory amounts for each year by finding them on the company balance sheet. You’ll also often find additional notes within the annual report describing the additional cost details of expenses grouped into the company’s cost of sales.

Example Nike cost of sales note:

Cost of Sales vs Cost of Goods Sold

Retailers and service-oriented businesses like lawyers, consultants, and doctors tend to use the term cost of sales or cost of services. Manufacturing companies on the other hand tend to use the term cost of goods sold as this label better fits the expenses tied to making a tangible product. Fundamentally, both terms are interchangeable and capture any costs linked to producing a product or service.

Why is Cost of Sales Important?

The cost of sales line item on a company’s income statement allows investors to have a first look at the profitability of the production process. The cost of sales (or sometimes cost of good sold) is deducted from a company’s revenue to arrive at the company’s gross profit.

Financial analysts will often look at the gross profit and gross margin percentage (gross profit divided by revenue) to measure how profitable a business is before looking at general operating expenses, interest expenses, and taxes. Different industries will often have different average profit margin standards as a manufacturing company will likely incur a high amount of direct production costs while a service-oriented company will likely have very small amounts of direct production costs.

Cost of Sales vs Operating Expenses

Cost of sales is different from operating expenses in that the cost of sales covers costs directly tied to the production of goods and services. General operating expenses capture costs not directly tied to the production of goods or services but are still needed to keep the company running.

Example operating expenses:

• SG&A (Selling, General, and Administrative Expenses): Overhead costs not directly linked to production.
• Rent: Office space, Warehouse space to store finished goods. Rent for a factory or production facility would be considered a cost of sales expenses.
• Utilities: All utility expenses not directly tied to production.
• Sales & Marketing: advertising costs, base wages for sales and marketing personnel (excluding sales commissions).
• R&D (Research & Development): Testing expenses for future product improvements.

Cost of Revenue vs Cost of Sales

A company’s cost of revenue is similar, but not exactly the same as the company’s cost of sales or cost of goods sold. The cost of revenue includes the total cost of producing the product or service as well as any distribution and marketing costs. Some companies will use cost of sales or cost of goods sold while other companies will use cost of revenue. This choice may shift certain expenses to and from the operating expenses section of a company's income statement.

Example cost of revenue expenses:

• Cost of sales
• Shipping costs
• Commissions
• Other direct costs

Additional Resources

Want to level up your accounting? Consider checking out our Financial Accounting Essentials where we teach students how to build a balance sheet, income statement, and cash flow statement from scratch based on a set of transactions. You'll also learn to find, read, and analyze the financial statements of real companies such as Microsoft and PepsiCo. Students who have taken this course have gone on to work at Barclays, Bloomberg, Goldman Sachs, EY, and many other prestigious companies. Get started now !

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Introduction

Building a cash flow statement from scratch using a company income statement and balance sheet is one of the most fundamental finance exercises commonly used to test interns and full-time professionals at elite level finance firms.

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What is cost of sales in a small business?

Table of Contents

What cost of sales is

What to include in a cost of sales calculation, beginning inventory for the year, ending inventory, how to calculate your cost of sales, what else you need to know about cost of sales, how to manage your costs easily with countingup.

Understanding how money moves in and out of your business (your cash flow ) is essential to staying on top of your company’s financial health. Cost of sales is an important part of your cash flow and one of the key aspects you need to keep track of.

This guide will help you understand cost of sales by exploring:

• What to include in your cost of sales calculation

Also referred to as the cost of goods sold (COGS), cost of sales refers to the direct costs related to manufacturing the products or services you sell to your customers. Cost of sales focuses only on these expenses, ignoring the selling, general and administrative (SG&A) expenses and interest expenses (charges for borrowing money). 

In short, cost of sales tracks your ability to produce or deliver goods and services at a reasonable cost.

A point where people often get stuck when it comes to the cost of sales calculation is what expenses they need to include. It’s like this:

If you could still manufacture your product or deliver your service without paying for a certain expense, then you leave that expense out of your calculation. However, if you fail to pay a cost and your entire production stops because of it, you’ll need to include it. 

Some expenses you may need to include are:

• Software licensing
• Raw materials or supplies needed for production
• Cost of packaging for products
• Cost of storing products or materials

Essential costs vary depending on your business and the sort of products you make. Still, we’ve listed a few items that don’t directly link to production, meaning you shouldn’t include them in your calculations. For example:

• Customer success costs (helping customers achieve their goals with the product or service)
• Costs related to upselling (encouraging customers to buy a better, more expensive product/service)
• Cost of specific overheads (ongoing operational expenses)
• Cost of product development (creating a new product or improving an existing one for customers)

Aside from these costs, there are two key factors to consider when calculating your costs of sales, which are as follows:

Your beginning inventory refers to products you have when you start a new accounting period,  usually at the beginning of a new tax year. This inventory is a cash amount that matches what that inventory is worth.  

You need to include purchases, including the new products you produce or buy to add to your inventory throughout the year.

Beginning inventory covers several items, including:

• Inventory left over from the previous year (products that didn’t sell)
• Raw materials used to make the products
• Related supplies (packaging, etc.)

How do you establish a starting point for your cost of sales calculation? First, you’ll need the value of your beginning inventory for that accounting period. Use your accounting records (where you log and track your financial transactions) to calculate this number and include it in your beginning inventory calculation.

On the other side of the equation, your ending inventory is the total value of products you have in stock at the end of the accounting period. You typically determine this number by taking a physical count of your inventory.

While it may seem complicated, calculating your cost of sales is relatively straightforward. There’s a simple formula you can use:

Cost of Sales = Beginning Inventory + Purchases – Ending Inventory

How does this formula work in practice?

Let’s say a company has £5,000 worth of inventory at the beginning of the month and spent £1,000 on raw materials and delivery. If that same company has an ending inventory of £3,000, you use that to calculate the cost of sales for that month:

Cost of Sales = £5,000 + £1,000 – £3,000 = £3,000

This means that the total cost of sales for that month was £3,000.

Now that you understand what cost of sales is and how to calculate it, we’d like to cover a few aspects to consider when it comes to cost of sales in general. 

Firstly, you only need to track cost of sales if you sell physical products, such as clothing , baked goods or accessories. If you run a service-based business and don’t carry inventory, you don’t need to track cost of sales. Examples of service-based jobs could be personal trainers, contractors, tutors or engineers.

Additionally, if your business hasn’t made any sales during a specific time period, you can’t deduct money from your cost of sales. This applies even when you’ve manufactured or bought products to sell.

Don’t forget to factor in facility costs when valuing the cost of your inventory. Facility costs refer to expenses relating to the facility (building) where you make your products, including rent and utility bills. It’s important to account for these costs to make sure your ROI (return on investment) is positive, meaning you make enough money selling your goods for the cost to be worth it.

As your business grows, cost of sales calculations can be challenging to handle. You may want to consult with an accountant or bookkeeper to double-check your calculations or have them calculate them for you.

The Countingup business current account makes it simpler to manage your business finances. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You can access real-time insights into your business’ finances, profit and loss reports, tax estimates and invoices. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!

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• Cost of Goods Sold (COGS)
• Understanding COGS

What Is Included in the Cost of Goods Sold (COGS)?

• Formula and Calculation
• Accounting Methods

What Type of Companies Are Excluded From a COGS Deduction?

Cost of revenue vs. cogs, operating expenses vs. cogs.

• Cost of Sales vs. COGS
• Limitations

The Bottom Line

• Corporate Finance
• Financial Ratios

Cost of Goods Sold (COGS) Explained With Methods to Calculate It

What Is Cost of Goods Sold (COGS)?

Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.

Cost of goods sold is also referred to as "cost of sales."

Key Takeaways

• Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods.
• COGS excludes indirect costs such as overhead and sales and marketing.
• COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher COGS results in lower margins.
• The value of COGS will change depending on the accounting standards used in the calculation.
• COGS differs from operating expenses (OPEX) in that OPEX includes expenditures that are not directly tied to the production of goods or services.

Investopedia / Xiaojie Liu

Why Is Cost of Goods Sold (COGS) Important?

COGS is an important metric on financial statements as it is subtracted from a company’s revenues to determine its gross profit . Gross profit is a profitability measure that evaluates how efficient a company is in managing its labor and supplies in the production process.

Because COGS is a cost of doing business , it is recorded as a business expense on income statements. Knowing the cost of goods sold helps analysts, investors, and managers estimate a company’s bottom line. If COGS increases, net income will decrease. While this movement is beneficial for income tax purposes, the business will have less profit for its shareholders. Businesses thus try to keep their COGS low so that net profits will be higher.

Cost of goods sold (COGS) is the cost of acquiring or manufacturing the products or finished goods that a company then sells during a period, so the only costs included in the measure are those that are directly tied to the production of the products, including the cost of labor , materials, and manufacturing overhead.

For example, COGS for an automaker would include the material costs for the parts that go into making the car plus the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded.

Furthermore, costs incurred on the cars that were not sold during the year will not be included when calculating COGS, whether the costs are direct or indirect. In other words, COGS includes the direct cost of producing goods or services that were purchased by customers during the year. As a rule of thumb, if you want to know if an expense falls under COGS, ask: "Would this expense have been an expense even if no sales were generated?"

COGS only applies to those costs directly related to producing goods intended for sale.

What Is the Cost of Goods Sold (COGS) Formula?

COGS = Beginning Inventory + P − Ending Inventory where P = Purchases during the period \begin{aligned} &\text{COGS}=\text{Beginning Inventory}+\text{P}-\text{Ending Inventory}\\ &\textbf{where}\\ &\text{P}=\text{Purchases during the period}\\ \end{aligned} ​ COGS = Beginning Inventory + P − Ending Inventory where P = Purchases during the period ​

Inventory that is sold appears in the income statement under the COGS account. The beginning inventory for the year is the inventory left over from the previous year—that is, the merchandise that was not sold in the previous year.

Any additional productions or purchases made by a manufacturing or retail company are added to the beginning inventory. At the end of the year, the products that were not sold are subtracted from the sum of beginning inventory and additional purchases. The final number derived from the calculation is the cost of goods sold for the year.

The balance sheet has an account called the current assets account. Under this account is an item called inventory. The balance sheet only captures a company’s financial health at the end of an accounting period. This means that the inventory value recorded under current assets is the ending inventory.

What Are Different Accounting Methods For COGS?

The value of the cost of goods sold depends on the inventory valuation method adopted by a company. There are three methods that a company can use when recording the level of inventory sold during a period: first in, first out (FIFO) , last in, first out (LIFO), and the average cost method. The special identification method is used for high-ticket or unique items.

FIFO Method

The earliest goods to be purchased or manufactured are sold first. Since prices tend to go up over time, a company that uses the FIFO method will sell its least expensive products first, which translates to a lower COGS than the COGS recorded under LIFO. Hence, the net income using the FIFO method increases over time.

LIFO Method

LIFO is where the latest goods added to the inventory are sold first. During periods of rising prices, goods with higher costs are sold first, leading to a higher COGS amount. Over time, the net income tends to decrease.

Average Cost Method

The average price of all the goods in stock, regardless of purchase date, is used to value the goods sold. Taking the average product cost over a time period has a smoothing effect that prevents COGS from being highly impacted by the extreme costs of one or more acquisitions or purchases.

Special Identification Method

The special identification method uses the specific cost of each unit of merchandise (also called inventory or goods) to calculate the ending inventory and COGS for each period. In this method, a business knows precisely which item was sold and the exact cost . Further, this method is typically used in industries that sell unique items like cars, real estate, and rare and precious jewels.

Many service companies do not have any cost of goods sold at all. COGS is not addressed in any detail in  generally accepted accounting principles (GAAP) , but COGS is defined as only the cost of inventory items sold during a given period. Not only do service companies have no goods to sell, but purely service companies also do not have inventories. If COGS is not listed on a company's income statement, no deduction can be applied for those costs.

Examples of pure service companies include accounting firms, law offices, real estate appraisers, business consultants, and professional dancers, among others. Even though all of these industries have business expenses and normally spend money to provide their services, they do not list COGS. Instead, they have what is called "cost of services," which does not count towards a COGS deduction.

Costs of revenue  exist for ongoing contract services that can include raw materials, direct labor, shipping costs, and commissions paid to sales employees. These items cannot be claimed as COGS without a physically produced product to sell, however. The IRS website even lists some examples of "personal service businesses" that do not calculate COGS on their income statements. These include doctors, lawyers, carpenters, and painters.

Many service-based companies have some products to sell. For example, airlines and hotels are primarily providers of services such as transport and lodging, respectively, yet they also sell gifts, food, beverages, and other items. These items are definitely considered goods, and these companies certainly have inventories of such goods. Both of these industries can list COGS on their income statements and claim them for tax purposes.

Both operating expenses and cost of goods sold (COGS) are expenditures that companies incur with running their business; however, the expenses are segregated on the income statement. Unlike COGS, operating expenses (OPEX) are expenditures that are not directly tied to the production of goods or services.

Typically,  SG&A (selling, general, and administrative expenses ) are included under operating expenses as a separate line item. SG&A expenses are expenditures, such as overhead costs, that are not directly tied to a product. Examples of operating expenses include the following:

• Office supplies
• Legal costs
• Sales and marketing
• Insurance costs

What Is the Difference Between Cost of Sales and Cost of Goods Sold?

While these terms are often used interchangeably, there's a subtle difference between the two . COGS specifically refers to the direct costs associated with producing goods or acquiring inventory that has been sold during a particular period. By contrast, COS includes not only the direct costs of goods sold but also other costs directly related to generating revenue, such as direct labor and direct overhead. Essentially, COS encompasses a broader range of expenses than COGS, as it may include additional costs associated with delivering the product or service to the customer.

What Are the Limitations of COGS?

COGS can easily be manipulated by accountants or managers looking to cook the books. It can be altered by:

• Allocating to inventory higher manufacturing overhead costs than those incurred
• Overstating discounts
• Overstating returns to suppliers
• Altering the amount of inventory in stock at the end of an accounting period
• Overvaluing inventory on hand
• Failing to write off obsolete inventory

When inventory is artificially inflated, COGS will be under-reported which, in turn, will lead to a higher-than-actual gross profit margin, and hence, an inflated net income.

Investors looking through a company’s financial statements can spot unscrupulous inventory accounting by checking for inventory buildup, such as inventory rising faster than revenue or total assets reported.

How Do You Calculate Cost of Goods Sold (COGS)?

Cost of goods sold (COGS) is calculated by adding up the various direct costs required to generate a company’s revenues. Importantly, COGS is based only on the costs that are directly utilized in producing that revenue, such as the company’s inventory or labor costs that can be attributed to specific sales. By contrast, fixed costs such as managerial salaries, rent, and utilities are not included in COGS. Inventory is a particularly important component of COGS, and accounting rules permit several different approaches for how to include it in the calculation.

What Is Included in the Cost of Goods Sold?

Cost of Goods Sold represents the direct costs attributable to the production of goods sold by a company. It includes various costs directly associated with the production or acquisition of the goods that a company sells during a specific period. These costs typically include:

• Direct materials
• Direct labor
• Manufacturing overhead
• Freight and shipping costs (but not the cost of shipping products to customers)
• Direct costs of production

Are Salaries Included in COGS?

COGS does not include salaries and other general and administrative expenses; however, certain types of labor costs can be included in COGS, provided that they can be directly associated with specific sales. For example, a company that uses contractors to generate revenues might pay those contractors a commission based on the price charged to the customer. In that scenario, the commission earned by the contractors might be included in the company’s COGS, since that labor cost is directly connected to the revenues being generated.

How Does Inventory Affect COGS?

In theory, COGS should include the cost of all inventory that was sold during the accounting period. In practice, however, companies often don’t know exactly which units of inventory were sold. Instead, they rely on accounting methods such as the first in, first out (FIFO) and last in, first out (LIFO) rules to estimate what value of inventory was actually sold in the period. If the inventory value included in COGS is relatively high, then this will place downward pressure on the company’s gross profit. For this reason, companies sometimes choose accounting methods that will produce a lower COGS figure, in an attempt to boost their reported profitability.

Cost of goods sold is the direct cost of producing a good, which includes the cost of the materials and labor used to create the good. COGS directly impacts a company's profits as COGS is subtracted from revenue. Companies must manage their COGS to ensure higher profits. If a company can reduce its COGS through better deals with suppliers or through more efficiency in the production process, it can be more profitable.

Internal Revenue Service. " Publication 535 (2022), Business Expenses ."

Mitchell Franklin, Patty Graybeal, and Dixon Cooper. " Principles of Accounting, Volume 1: Financial Accounting ," Pages 373 and 407.

Mitchell Franklin, Patty Graybeal, and Dixon Cooper. " Principles of Accounting, Volume 1: Financial Accounting ," Pages 652-654.

Internal Revenue Service. " Publication 334: Tax Guide for Small Business ," Page 27.

Mitchell Franklin, Patty Graybeal, and Dixon Cooper. " Principles of Accounting, Volume 1: Financial Accounting ," Page 405.

Internal Revenue Service. " Publication 334: Tax Guide for Small Business ," Pages 28-29.

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Calculating the Cost of a Sales Call

• Sales Management

Do you know the cost of a typical sales call in terms of real dollars and cents? More importantly, do your salespeople know the cost of a sales call?

I suspect that if salespeople realized the real cost of making a sales call they might be more careful about how they spend their time and who they spend it with. I mean it just doesn’t make sense to make a $250 sales call to sell a $100 item does it? Yet, that’s the kind of thing that’s going on day after day. In fact a lot of people are making $250 sales calls and not selling a thing!

Is It Happening to You?

It’s fairly easy to figure out what a typical sales call is costing you if you keep reasonable sales records.

You simply calculate the salesperson’s costs by totaling his or her compensation, benefits, and travel-and-entertainment expenses and divide that amount by the number of sales calls he or she made over the past month, quarter, or year. While the costs are usually easy to find out, the one piece of information that may be missing is the actual number of calls your salespeople are making. You may need to have your people turn in their numbers every day or week until you’ve got enough to work with. You’re looking for the total number of face-to-face calls your people made, not just “sales calls.” If all else fails, you may have to make an educated guess at this number.

What Should the Numbers Be?

The numbers will depend on the type of selling your people do. Basically, the four types of selling are:

• transactional/commodity selling
• basic feature/benefit selling
• solution selling
• value-based selling

On average, a typical sales call is costing around $225-$250.

If you’re primarily doing transactional (commodity) selling where simply completing the paperwork is the major part of the transaction, then your cost of sales should probably be about $80-$85. This is a type of “selling” where there is usually more buying going on then there is selling.

If you’re doing feature/benefit selling where price and features are equally important–the type of selling that involves matching your product/service’s benefits to the prospect’s needs–then your cost of selling will most likely be around $155-$160 per sales call. That’s a sizeable jump over the cost of a commodity sale.

Then we have what is called solution selling. While it could be argued that all selling is solution selling, what we mean here is the type of selling where the product is tailored to the customer and price is secondary. Costs here are about $225-$250 per sales call.

The last category is value-based/team selling. While similar to solution selling, value-based selling is where the solution is the key factor and price is much less important. Here your costs are likely to run between $275-$300 per sales call.

If your numbers are in the ballpark, don’t worry too much, but if your numbers are out of whack, it might be wise to take some corrective measures, especially if your costs are too high.

What Are You Paying For?

You certainly don’t want to be paying $230 for someone to go around making social calls, comfort calls, or delivering literature. You want to be sure your people are making calls with a purpose and hopefully that purpose is to start, advance, or close a sales opportunity. That’s what they’re getting paid to do.

Of course, all the calls in the world aren’t worth dust unless sales are being made. You need to balance the cost of a sales call against sales results. If sales are roaring in, you can be less concerned about your cost of a sales call but don’t get complacent. Keep your financial finger on the pulse of your sales team.

Tell the Troops

Once you’ve gone through this exercise, I recommend that you let your salespeople know what it’s costing you to have them make calls. I’m not suggesting you do this to intimidate them. Don’t use the information as a club, use it as a tool. The primary purpose for telling them is to create awareness among the team that their time and effort has a dollar value associated with it.

The average salesperson might find the numbers interesting but won’t know what to do about it. Those at the bottom of the sales food chain won’t give a damn. But the smart ones will think twice before making a call without setting a call objective.

The smart ones will make every call count and that’s what you’re looking for.

Now your challenge is to hire and/or develop a bunch of smart ones!

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2 Chapter 2: The Client Sales Engagement (Sales Visit)

There may be few or many sales visits within the Sales Process for Corporate Engagement. Visits (or individual engagements) should be with a key decision-maker (KDM) or a key decision-influencer (KDI) affecting the decision process. Each meeting should be similar in structure. The discussion of the meeting will coincide with the discipline of the client’s responsibilities. For example, a meeting with the operations manager will have some topics that are different than when meeting with the customer service manager. The sales team will prepare different questions and focus on elements that are important to the KDI or KDM. Even though the questions and focus may be different for each contact, the structure of the sales visit should follow a flow that is common to all.

The Sales Visit should not be confused with the Sales Process . The Sales Process is the roadmap that moves a client from “Prospect” to “Implement” (studied later in the text). The Sales Visit is one interaction (one meeting) with a client. There will typically be several meetings to get us from prospect to implement.

This chapter focuses on the Sales Visit. Most corporate sales engagements are scheduled from 30 minutes to two hours. The sales professional’s job is to use several engagements (sales visits) to piece together a compelling story for the client to choose one brand over another. Professional salespeople prepare well in advance to have a prosperous business discussion about important topics to the client. The art of the sale is finding the right communication topics and tone as you enter the conversation with the client. Engagements planned around the client and their celebrations and challenges are much more effective than an engagement planned around the sales professional.

The Sales Process for Corporate Engagement includes negotiations, marketing insights, sales strategy, and tactics; all used methodically to make the sale. The distinction between a marketing presentation and a sales presentation includes the consideration of the situation and objective. Sales seeks to understand the client. Marketing helps the client understand the seller. Both are important and have their place. The Sales Process for Corporate Engagements will help keep sales professionals aligned with fundamentals that lead to success.

Professional Self-Precheck

Before we dissect the Client Sales Engagement, let’s check ourselves. We are a representation of ourselves and the firm. In the words of Herb Brooks (played by Kirk Russel) in the great movie Miracle (a sports drama about the 1980 U.S. Olympic Hockey team), “The name on the front is a heck of a lot more important than the name on the back!” Meaning your individuality must yield to the team. This sales engagement is not about you. It is not about the “sage on the stage.”

Your presentation should be built in a way that you understand the client. Respect for cultures is critical to making the right impression. Do your best. Do your research and be prepared for every visit.

Dressing one level above the others in the room is good practice. Don’t use spicy language. Stand when the customer enters the room. Open the door for others to show you respect them. In other words, check yourself before you wreck yourself. Boardroom etiquette has a high-level of respect, mannerisms, and cordial language.

Company Leadership

Company leadership will be departmentalized into disciplines. Common department leaders are discussed in this section. Firms’ hierarchies vary. We will consider a typical structure for many firms to practice.

Medium to Large Firm Management Structure

CEO – Chief Executive Officer (Usually has a place on the board, the ultimate responsibility for the firm)

CFO – Chief Financial Officer (Finance, Investor Relations)

COO – Chief Operating Officer (Manufacturing/Distribution, Supply Chain)

CIO – Chief Information Officer (Technology)

CCO – Chief Commercial Officer (Strategy, Sales, Marketing)

Departments exist under each chief. Usually, the titles start with Vice President and extend through middle managers (example, Operations Manager) and then to team leaders of front-line workers. The structure may appear as the following:

It is essential to navigate the channels to find the KDMs and KDIs. Company cultures vary. Decision criteria and processes need to be vetted by the sales professional early in the sales cycle. Be careful not to get bogged down with individuals that cannot add value to your time and efforts. Navigating gatekeepers will require a solid message and skill. Organization charts can be of assistance when learning about a new prospect.

Small Firms

Leadership may play multiple roles in start-ups, or smaller firms focused on a specific niche in the market. One may find that there are fewer sales visits initially due to the ability to get a lot of information about the firm from one or two people.

Owner-operated

The Owner/President may not have the luxury of a full staff. Leaders may have larger responsibilities that expand across disciplines. There may be only one Vice President that is responsible for staff members. These staff members may be responsible for everything and everyone in that discipline or department. Titles may be used interchangeably.

Finance Manager

• Procurement
• Accounts Payable
• Accounts Receivable
• Company Financial Management

Operations or Warehouse Manager

• Manufacturing

Technology Director

• General Technology

Sales and Marketing Manager

• Customer Service
• Market Strategy (works closely with President and Vice President)

Supply Chain Director

• Raw material acquisition
• Transportation/Shipping
• Brokerage (works with finance)

Targeted Contacts

The targeted contacts (KDM or KDI) will be based on the information that is needed to understand at this phase of the sales process. Typically, a product or service will dictate this situation. For example, if the sales professional sells lubricants for manufacturing processes, the target audience may be the Director of Manufacturing. The team would not start on the customer service team.

Usually, there is always a financial element to the sale. This suggests that at some point, the sales professional will have to present a return on investment (ROI) to the finance manager or the CFO. Articulating value becomes the spoken language when bridging these sales events. Numbers are always significant, all the time, every time.

Client Visit Planner

Preparation is key to winning any sales engagement. You must ask yourself, “what value am I bringing to this client today?” If there is not a solid answer, then more preparation must be done. Preparation includes the follow (not a complete list):

• Research of the client, products/services, industry, and competitors
• Financials of the client
• Leadership that you wish to engage (LinkedIn, News, etc.)
• Physical personal touch – go to a customer’s location, try to experience your client’s customer’s experience.

When preparing for the visit, it is important to use a Sales Visit Planner. There are many types of planners – each one fitting a company’s specific sales needs. The one provided is a generic example. This planner will be used during the meeting to keep the sales team on track with the sales strategy.

Elements of the basic client visit planner:

• Objective – This is a clearly defined objective that is the primary goal of the client visit.
• Opening Theme – Delivers a clearly articulated message as to the possibilities of the visit. For example, “During this meeting, the goal is to demonstrate our capabilities that will eliminate primary challenges of operational issues related to stock-outs. Appreciate candor and open discussion as we want to build a long-term business relationship that makes sense for both parties.”
• Questions – These questions will fit the phase of the sales process and the audience that are meeting. The level of questions should be strategic or more tactical depending on the leader within the client organization.
• Marketing Insights – specific data points that tell a story to increase value in the mind of the client. For example, “According to the PEW Institute study dated Mar 17, 2023, 92% of soccer mom’s prefer the TEAMCHAT app over other group chats related to K-8 team sports.”

Stage 1 – Opening

The opening is critical to the outcome of the engagement.

I ntroductions

Appearance as a sales professional is expected to match the client. The sales professional attire should also make a statement about your firm’s brand. For example, if you are representing a high-level attorney staffing firm, a suit and tie may be in order. If the sales professional is working with boat manufacturers in South Carolina on the coast, it may be appropriate to be in business casual (or even without a jacket).

Demeanor (smiles, positive, professional mannerisms, posture) says a lot about the sales professional. Be always cordial and respectful.

Greeting appropriate (firm handshake, bow)

Thank the client for the meeting. Provide your full name and the firm you represent.

“My name is ______. I represent _______ (company). I am the solution specialist for ______ division or ______resources…”

• Present business cards with care. Receive business cards with respect.
• Wait to be offered a seat. Do not sit until the client sits.
• If new members join the meeting, stand to greet them. Then, wait until they sit before proceeding.
• Confirm time allowed and people involved in the meeting.

Rapport (length of time depends on culture). Build rapport with the client before the business conversation. Best practices would include accolades for the client. “Congratulations on the recent sales award” “I saw the article in the paper regarding your expansion.”

Review agenda and confirm topics with the client. Use a theme statement to explain your desire for a collaborative partnership deliberately. Ask permission to share the document or slide show that will be used in the meeting.

Decision Process and Criteria

Ask for clarification of the decision process regarding agenda items and those involved. Use agenda topics and confirmation of influencers (people involved in the decision) to BRIDGE into business discussion and gain permission to ask questions to take notes.

Stage 2 – Strategic Direction

Research Reveal and Understand Client Situation .

Demonstrate knowledge of the client’s firm by referencing research and meetings with other internal personnel or groups – position yourself as a prepared, serious partner. For example, “While preparing for our meeting, I met with your staff as a guest during one of their pre-work meetings. I received some interesting information.” “I also did quite a bit of research on your firm and your competitors. I would like to go through some key points to ensure my understanding so I can serve you better.”

Confirm research and clarify the situation. Probe to verify research and learn more.

• o Current company sales
• o Position in the market (example, #3 in the market, three locations in the U.S. and two in China).
• o Locations of manufacturing firms or sources.
• o Number of employees
• o Customers served
• o Client’s competition
• Include Marketing Insights regarding the direction of the industry that strategically positions your firm.

Leadership Imperatives (these will vary depending on the position of the client)

Ask questions to determine the strategic direction of the client (Top-Line and Bottom-Line KPI – Key Performance Indicators or BSC – Balanced Score Card)

• o Sales growth goals
• o Mergers and acquisitions
• o Additional markets
• o New facilities
• o New products/service offerings
• o Production
• o Supply chain
• o Inventories

Key Performance Indicators (KPI) are primary metrics that inform decision-makers of business realities so that decisions can be made that will positively affect the firm’s outlook.

Balance Score Cards (BSC) are typically metric items for an individual or department with grading to determine performance effectiveness.

Stage 3 – Investigate for Challenges

Challenge the situation (ask questions related to challenges of the KPIs and BSC) .

Dissection of the client’s strategies and processes (one piece at a time) to determine challenges or problems (seen or unseen) is the critical part of the questioning skill that will help you build a business case to articulate the value of the offering.

• “What challenges do you foresee with attaining the sales goals?”
• “Any production bottlenecks or pain points expected with the increase in manufacturing demands?”

Probe at least two levels. For example, “Tell me more….” “Can you explain what you mean by that…” Restate the answer/summarize for understanding/confirm the challenge is clear. Checking for understanding will show the client that you are listening and tracking with the direction of the conversation that is important to them.

Strategic Alignment by ordering the importance of the challenges (client’s order of importance) will send a clear message to the client. Clients have their key priorities based on the order of importance or strategic direction. Successful sales professionals align with the client and repeat the imperatives often.

Stage 4 – Cost Implications – “Indict the challenge, not the client”

Create Cause and Effect (ask questions to determine the probable cost of the challenges).

The cost impact of a challenge or problem is the core of the value proposition. Sales professionals must determine the cost implications of the challenge. Ask related questions to assess the implications of the challenges. Uncover specific elements of the cost. Some of the cost drivers are as follows:

• # of employees
• Hours worked
• Pay per hour (add fully allocated cost of production)
• Quality rework cost
• Client acquisition cost for lost business (retention of current customers is imperative to your responsibility)

During the Cost Implications Stage, sales professionals will uncover cost figures that is needed to build value for the solution. Some questions examples follow:

Question: “Within the area of the warehouse with concern, how many employees are affected?

Answer: “4”

Question: “How many hours do these individuals work that is affected during this time?”

Answer: “3.5 hours”

Follow up: “So, four employees at 3.5 hours each is 14 total hours.” “What is the average pay per hour?”

Answer: $22.50, including insurance costs.

Total Cost Summary

Statement Recap: “$22.50 per hour times 14 hours equals $315 per day on average for this challenge. Right?”

Answer: “That is correct. We see on average $315 times 254 working days, which is $80,010 annually for this problem that we are having.”

NOTE: Once the client agrees with the cost of the problem, that number will live throughout the value proposition. Here the example is $80,010.

Stage 5 – Propose Solutions or Alternatives (that align with your firm)

Conditionally propose offerings .

At this point in the visit, the sales professional will be considering solutions that will meet the client’s challenge. Ask questions to test the client’s desire or need for the best-fit solution.

Question: “If I could cut your production time by 10% and eliminate the challenge of ______, would you be interested?”

Answer: “I’m not sure. I would need to understand better.”

Marketing Insights and Product/Solution Advantages: “Our new abrasive product line has been proven to cut production time and works with your equipment so that there is little to no training. We estimate that we could cut your production time by 13%.”

Trades are part of the negotiation process that must enter the discussion.

• o “If you are willing to allow me to position my product, I would consider….”
• o Confirm the value of your solution in the mind of the client (agree on a monetary value for each offering)
• o Discuss implementation scenarios

Gain agreement from departmental leaders or other KDMs to support your proposed solutions within a more significant Strategic Business Case for the firm overall.

NOTE: Strategy for concessions is critical during this stage (remember negotiation planning). Be sure to plan for what you will receive in return for your proposed solutions. We are reaching a point where there can be no ambiguity in the relationship between you and the client related to your intentions. You are there to make a sale. This is a negotiation. Trades will be part of the process.

Stage 6 – Articulate Value of the Business Case (Art of Value)

The Art of Value may be painted by an elaborate process flow map with engineering time metrics at each segment that shares minutes, $, people, or some other element that impacts an operation. Or the Art of Value may be a simple whiteboard session that talks through the entire business situation. Students will work on the process of building a business case with a rubric provided by the facilitator. Keep in mind that the beauty of art is in the beholder. Know your audience. Different methods of presenting are acceptable. It depends upon the situation.

Up to this point, the sales visit flow across managers, regardless of discipline, is the same, except for the topics. For example:

• Supply Chain
• Finance (Procurement will sometimes require a formal presentation before ultimate leadership)

This typical flow usually will engage leaders in the firm that physically uses the sales team’s product or service. Once the sales professional understands the client’s business and personal needs/desires, navigate to success by working through the various leaders responsible for parts of the process.

Case Scenario:

Company (our company) – Alpha LLC., a maker of drilling tools and bonding agents for laminating wood.

Position – We are an account executive responsible for selling to clients in the cabinet industry.

Prospect – Creative Cabinets specializes in high-end custom cabinetry for homes and businesses. Their product is known worldwide due to their patented production process that uses large, computerized machines to build cabinet doors with intricate detail within a very short amount of time.

Reason Creative Cabinets is a great prospect – Our firm (Alpha LLC.) has the finest steel and carbide tools in the industry that will work in the Creative Cabinets’ machines.

The Sales Process – We may have a Sales Process Flow that looks like the following (Follow the Flow).

NOTE: Although there were five meetings in the sales process, each sales visit had similar stages or interactions. See the following examples:

Meeting 1: Operations Manager – Gain a first meeting with the operations manager to determine the viability of the prospect. Gain information about their goals and learn about the decision-makers in the firm.

Meeting 2 : Customer Service – Meet with customer service to determine if there are significant challenges with the product (which would insinuate there are problems with the tools in production).

Meeting 3 : Operations Manager – Meet again with the operations manager to share the detail from customer service and address the challenges of quality and determine the implications of the quality issues.

• a) Indict the challenges to determine implication costs.
• b) Propose Solutions and build the value of your product in the mind of the client.

Meeting 4 : Procurement/Finance Manager – Meet with the finance team to discuss the challenges that you have uncovered and solutions you have provided, and gain information from the perspective of the finance team regarding overall cost. Focus on the overall value of your offering. Be careful not to get pulled into a price discussion too early.

Meeting 5 : President/Owner/CEO – Presentation built with the approval of the key influencers. This presentation will be about the Current State and Future State with Revenue and Cost improvements.

Consider that the team is currently in Stage 6, Articulation of Value, for the scenario with a VP of a small firm. The following is an outline of a possible discussion….

Presentation (PowerPoint)

• Agenda (Confirm agenda aligns with the client).
• o State objectives of the meeting.
• o State understanding of the firm’s goals and direction of the organization (short-term and long-term).
• Current State and Issues (Dangers to current situation if not changed).
• Future State (with cost elements or lack of revenue) and Solutions (Benefits to change).
• Value of the proposal in the client’s terms.
• Revenue and Cost Overview – confirm the numbers are accurate.
• Propose to move forward and Close the Deal (gain advance with a firm date and time if more meetings are needed).
• Present Implementation Plan (includes both parties) and confirm the date of completion.

Negotiate terms of agreement (including price)

• Protect self-interest.
• Trade for collaboration (charge more for desires than needs satisfaction).
• Use your pre-meeting, planned concession strategy to guide you (see negotiation planner).

Overcoming Objections

• Ask questions to understand.
• Confirm/Restate the customer’s point for clarity.
• o Pause for customer agreement.
• Ask if you have resolved the concern.
• o If non-related to the agreement, defer to another meeting.

Stage 7 – Closing the Deal

Proposing to move forward .

Once the value has been articulated, negotiations have taken place, and objections have been overcome, to confirm that the client agrees with the overall business case.

Provide a summary of the meeting and test the client’s willingness to buy.

• Address any concerns or questions.
• Ask for a commitment from the client to move forward with the implementation plan.
• Present the document to close (the first step in the implementation plan is to sign the agreement).

Implementation Plan Example – In some cases, the Implementation Plan may require a Project Manager with a more robust tool for tracking the process to completion. Implementation plans are covered later in the text.

Rubric for Sales Visit (college competition)

University Sales Competitions use an elementary rubric assessment form to judge students during the role plays. The highlight areas are as follows:

• Meeting Opening (5%)
• Needs Identification (40%)
• Presentation (15%)
• Overcoming Objections (15%)
• Gain Commitment (10%)
• Professional Communication (10%)
• Credible and Trustworthy (5%)

Chapter Overview – YouTube channel

Sales Process for Corporate Engagements Copyright © 2023 by Brian Morgan is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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The Complete Guide to Sales Analytics

Learn how to use sales data to make smarter business decisions and increase revenue.

Candi Bashiri

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Every sales team wants the secret sauce to help grow their revenue. However, the answer is often right in front of you — in the data. Though it’s often hard to turn data into actions, analytics can provide the answer you need to get higher earnings next quarter.

Wondering where to start? You’re in the right place. We’ll walk through the basics of sales analytics, the benefits, and metrics to track to keep your business growing.

What you’ll learn:

What is sales analytics, benefits of using sales analytics, types of sales analytics, 9 sales metrics to monitor, tips for integrating analytics into sales processes, features to look for in a sales analytics tool, hit key kpis with real-time pipeline insights.

What could you do with relevant insights at your fingertips? Sell smarter, take action, and hit your forecasts. That’s how Sales Analytics works.

Sales analytics is gathering sales data points using technology to see your organization’s progress towards goals. This improves forecasting and helps identify new opportunities. Leaders can see what the team is doing right and what needs to adjust. By turning previously siloed sales data into actionable insights, you can make smarter business decisions.

Using analytics brings a wide range of benefits that helps increase revenue for your organization.

Identifying trends

Data tells a story about what is currently happening in your business. When you view data points separately, you may come to an incorrect conclusion because the significance of the event is unclear or the event is simply a one-off. By viewing data holistically, you can find trends that set the stage for forecasting behavioral insights.

Viewing analytics using charts and graphs often makes it easier to spot and then act on sales trends . For example, a product having lower sales for a single month may be due to an industry event or multiple sales representatives taking time off. However, a product with sales dropping over the past six months signifies an issue that needs to be addressed.

Optimizing sales strategies

Different sales strategies work best depending on the specific products and customers. Automatically capturing data through the lead generation process, including calls and emails, provides sales teams with more data and insights than they had in the past. For example, if a specific line of business takes longer to close than other lines, adjusting your sales strategy to better fit the products may increase sales. Additionally, analytics of individual sales representatives shows who hits their targets and goals. You can then consider which representatives would benefit from additional training or new sales strategies to improve their sales process.

Making data-driven decisions

Sales leaders make many decisions every day. While using data is not a new concept, analytics makes it possible to use data for smaller (and daily) decisions. In the past, leaders looked at the raw data and then had to interpret it correctly to make a decision. Much of that data was quickly outdated. Interactive dashboards and actionable insights now make it possible for sales leaders to make quicker and more accurate decisions.

For example, analytics gives managers a real-time (and complete) view of team performance. With actionable insights, analytics spotlights areas for improvement. Managers can then quickly see the best interventions to overcome challenges, such as providing additional training on closing techniques to a sales representative who generates many high-quality leads , but struggles to make the actual sale.

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While there are many different analytics used for sales, they all fall into three broad categories. By understanding these categories, you’ll find more ways to use analytics effectively in your business.

Performance

Performance sales analytics look at what happened through historical sales data and client churn (the percentage of customers that stopped using your product or service) to predict what is likely going to happen. Performance metrics typically involve comparing data points against each other, such as the target revenue and the current revenue, to generate the percentage progress of the goal.

Many metrics provide clues as to whether you are going to meet sales goals and help identify areas of improvement. For example, a sales representative’s sales goal is $1 million, which means they need a pipeline of $3 million because of average close rates. You can use the pipeline metric to identify sales representatives who may be in danger of not meeting their sales goals and offer intervention instead of waiting until the sales period has ended.

Forecasting

Setting goals is essential to successful selling, and getting them right is crucial. Sales representatives become frustrated if goals are set too high, while goals that are too low result in less revenue. In the past, forecasting often depended on gut feelings and looking at historical data. Now, analytics make it possible to combine historical data with data on current conditions to create a more accurate forecast.

Reps need opportunity data to map out the best path for closing deals. Managers need dashboards that show which reps are on track to beat their targets, and which reps need coaching to stay on track. Finally, sales leaders need to visualize data from around the company to spot problem areas and adjust the strategy to stay on course.

With sales analytics, you can use negative forecasting to understand risk by seeing the impact to a company if a current customer cuts their budget. While it’s easy to think of sales forecasting as simply for the sales department, you can use the techniques to see the impact to the entire company. For example, other departments may be able to increase their budgets based on increased sales and growth due to high sales.

Predictive analytics

Analytics can help you predict future performance, especially in terms of whether your team or a specific sales representative is going to meet a goal. Performing predictive analytics involves gathering historical data about your sales reps and then using a statistical tool to identify patterns and predict future outcomes. By using a sales analytics tool , such as Salesforce, your team can view actionable insights through reports and dashboards.

Once you have this information, your team can move to data-driven selling by predicting, planning, and delivering your targets and outcomes. It is now possible to predict aspects of the sales cycle that were previously not possible. Sales representatives are also able to close deals more quickly by knowing where to start the conversation with customers, which reduces churn and a lengthy process.

With so many sales metrics available, it’s important to monitor the right metrics. While the magic combination depends, to some extent, on your specific goals and organization, there is a core set of metrics that most, if not all, organizations should use as part of their analytics.

1. Sales growth

By calculating its annualized contractual value (ACV) , an organization knows the amount of all new and add-on opportunities. However, this number is only slightly useful in a vacuum. By comparing the current ACV to those of prior years, you can determine if your sales have grown or shrunk, which points to the future path. You can also show growth between sales periods to see change on a more micro level.

2. Sales target

Each quarter and year, sales leaders set total sales goals for the company, which are referred to as sales targets . With this number in hand, leaders can make a number of other key decisions, such as quotas, territories, and strategies. After reviewing the prior period’s data, leaders should consider any outside forces that could affect the ability to hit the target, and then set targets that allow for growth. Breaking sales targets down into smaller increments, such as quarters, makes them easier to track.

3. Sales per representative

Leaders can see how representatives stack up against each other by adding up all of the sales, including new and recurring, that are closed by each representative. Sales reps who are leading the pack can help mentor other representatives, while those falling behind can be provided with additional training. Sales per representative is simple addition, while quota compares the sales per representative to the sales target per representative.

4. Sales by region

Similar to sales per representative, this metric involves adding up sales based on customer region. For example, sales by region would include the total of all sales from customers in North America or Asia-Pacific. This metric uncovers patterns that can be used to find opportunities. For example, if sales are slowing in a particular region, leaders should investigate the cause and work to remedy the issues. On the other hand, sales trending higher each quarter may indicate a strong customer demand in that area.

5. Sell-through rate

You can also see sales trends, especially for products, by calculating the sell-through rate, which is the percentage of inventory that was sold during a specific period. This metric is especially important for companies selling physical products (to help with supply chain and inventory).

6. Sales per product

By adding up all the sales for each product, sales leaders can see where the majority of revenue is coming from on a product basis. This metric shows if a product may need additional representatives or changes to the product to improve demand.

7. Pipeline velocity

Your future revenue depends on a strong pipeline, which requires significant pipeline management . However, having a high volume in the pipeline doesn’t automatically mean success. With this metric, you determine both the volume and the quality of the pipeline to predict the likelihood of converting customers that are in the pipeline. Keep in mind that different lines of business may skew your deal velocity. For example, a renewal deal is open much longer than an incremental sale would be. It’s important to keep these in mind when measuring velocity.

8. Quote-to-close

This metric includes all quoted sales that are currently in process from start to finish. By monitoring quote-to-close, leaders have a good view of all activity currently in progress.

9. Average purchase value

Each sale involves significant effort for the sales representative. However, higher deals mean achieving revenue at a lower resource cost. By tracking this metric, leaders can provide training and strategies to help increase the purchase value. Additionally, sales representatives with higher average purchase values can provide insight to other team members to help them increase their own average purchase values.

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One of the challenges of using analytics is that it will change your current sales process. By adding in analytics, you shift the process, almost always for the better, but it’s still a change for leaders and representatives alike.

Get buy-in from sales representatives

Sales representatives are often initially resistant to analytics because they view them as a way of being judged and monitored. Before moving to additional analytics, meet with the sales team and point out the metrics that you’re currently using in your process, such as quotas and goals. Explain that adding additional analytics will give them more information to help them meet their sales goals. Give examples from current situations in their workflow to help them find immediate value. Additionally, having them understand how you use the data to make other company decisions gives them a sense of being part of the solution.

Map out the workflow

Start by creating detailed documentation of the current sales process, including the tools and strategies that are being used. Work with your sales representative to build a new workflow that integrates the new analytics. By including sales representatives in building the workflow, you can create a process that works for the people who are on the ground selling your products.

Use dashboards

By rolling out personalized sales dashboards , each sales representative can have exactly the information they need. Additionally, they can set up their dashboard for their own preferences and workflow. For example, a dashboard can be set for a weekly or monthly cadence. While it’s tempting to have different dashboards for managers and representatives, using the same dashboards for everyone allows full transparency and collaboration.

The right analytics tool can make it easier to include metrics in your workflow. Additionally, the technology allows you to use sales analytics at a much higher level.

When shopping for an analytics tool , look for the following features:

Charts and graphs

Visual representations make it easier for sales leaders and representatives to quickly see where they stand. A tool that offers multiple options also allows users to adjust for their preferences and learning styles.

Integration with CRM

Your CRM is already collecting many of the metrics needed for analytics. By using an integrated tool, you’ll increase adoption and accuracy. Seeing analytics right at a customer record is valuable for users as they go about their daily tasks.

Contextual insights

Tools that provide your sales team with specific insights (as well as data) help build stronger pipelines, improve forecasting, and generate more revenue.

One consolidated view

Your sales team is busy. They don’t have the time to look in a lot of different places for data and insights. With a single place to look, they can see a unified view of metrics, top opportunities, and weekly deal updates.

AI-powered insights

Looking for a new opportunity? Trying to decide which customer to focus on? A sales analytics tool that provides AI-based insights gives you the answers you need to build stronger pipelines and improve forecasting accuracy. You can also create test scenarios and see how changes to the pipeline affect your close rate and revenue.

Getting started with sales analytics

Without a doubt, analytics are the key to the future of sales . By transitioning your processes and tools to using analytics, your organization can see significant increase in revenue through spotting trends, making and picking the right sales strategies. Throughout the processes, monitoring the right sales metrics gives you the data you need to make smarter business decisions. Organizations that use sales analytics tools find the shift to be easier and more successful results.

Yes, it’s a big change. But once you make the move, your organization will see better results and smoother processes. Your team has the skills and knowledge to take your sales department to the next level with sales analytics.

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Home prices are skyrocketing. These are the cheapest places in Arizona to buy a home.

As home prices climb in metro Phoenix , it's getting harder to find an affordable home for sale.

In the past decade alone, the number of homes for purchase under $200,000 went from half of all sales to 21% of all home sales,  according to a recent report from Realtor.com . And, the national median listing price of homes has increased nearly 40% since 2019.

While the South and upper Midwest have more affordable homes than other parts of the United States, Arizona has four counties where the average home sold for less than $200,000.

Here are the cheapest Arizona and United States counties to buy a home.

How much do homes cost in Arizona?

These are the median sales prices for existing homes in 2023, according to the National Association of Realtors.

• Apache County: $69,020
• Cochise County: $219,660
• Coconino County: $479,800
• Gila County: $229,570
• Graham County: $183,960
• Greenlee County : $96,880
• La Paz County: $121,230
• Maricopa County: $459,020
• Mohave County: $288,520
• Navajo County: $221,520
• Pima County: $326,870
• Pinal County: $357,320

What does rent cost in metro Phoenix? See how prices in these 6 cities compare

5 cheapest US counties to buy a home

Texas was home to five of the 10 cheapest counties in the United States to buy a home. Kansas had three counties in the top 10.

These are the lowest median sales prices for existing homes in 2023, according to the National Association of Realtors.

• Todd County in South Dakota: $42,940
• Cochran County in Texas: $50,140
• McDowell County in West Virginia: $50,960
• Cottle County in Texas: $53,690
• Stonewall County in Texas: $53,690

5 most expensive US counties to buy a home

California was home to six of the 10 most expensive counties in the United States to buy a home. Kansas had three counties in the top 10.

These are the highest median sales prices for existing homes in 2023, according to the National Association of Realtors.

• Santa Clara County in California: $1,583,130
• San Mateo County in California: $1,573,470
• Marin County in California: $1,454,450
• San Francisco County in California: $1,332,660
• Nantucket County in Massachusetts : $1,313,450

Places for the whole family: This is the best Arizona city to raise a family in, new study shows. Here's why

USA TODAY reporter Sara Chernikoff contributed to reporting to this article.

Symptom Monitoring App Reduces High-Cost Health Visits for Breast Cancer Patients

By Shelby Crosier

Breast cancer makes up about one third of all new cancer diagnoses in U.S. women every year, and 1 in 8 women will be diagnosed at some point in their life. After skin cancer, it is the second most common cancer in women.

Most women diagnosed with breast cancer in the U.S. have hormone receptor-positive tumors, which doctors treat with adjuvant endocrine therapy (AET). AET increases survival rates , but it also has negative effects like joint pain and hot flashes. Those negative effects lower adherence to AET (make patients less likely to take their AET treatment as directed).

In a new study published in JAMA Network Open , a team of researchers led by Ilana Graetz, PhD , associate professor of health policy and management, evaluated an intervention to improve AET adherence. They tested a mobile app where women could report when they took their AET medication and any symptoms they experienced, with certain reported symptoms alerting the oncology team. Some participants also received weekly text messages with personally tailored information related to AET and managing symptoms.

What They Found

Using the app, with or without also receiving tailored text messages, did not improve AET adherence. However, there were secondary positive effects. Compared to participants who did not have access to the monitoring app, those who used the app and received tailored messages:

• Had fewer in-person medical encounters, likely because symptoms that triggered alerts could be resolved by a phone call with a nurse, rather than a visit to the clinic.
• Had fewer high-cost health care encounters (such as emergency department visits and hospitalizations).

Why It Matters

“Improving long-term endocrine therapy adherence is a complex problem that may require more comprehensive or targeted interventions,” says Graetz. “Even though we did not succeed in improving adherence, reducing high-cost encounters is highly consequential for patients, health systems, and payers."

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More From Forbes

3 focus points for building a stronger business case to prospects.

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Julie Thomas, President & CEO of ValueSelling Associates and a noted speaker, author and consultant.

To sell to the C-suite, adding value is essential. It sounds simple, but execution can be tricky. As a sales leader, you must guide your team to craft a compelling business case by emphasizing return on investment (ROI), cost of inaction (COI) and competing initiatives. When your sales team helps customers build this case, they’ll achieve greater success and establish themselves as trusted advisors.

Selling On Value Vs. Your Value Proposition

I’m sure your sales team understands a business case is vital to justify actions such as initiating projects, making investments or allocating resources. Building a tailored business case is the next step and involves examining the specific circumstances and financials of each customer, including volume, throughput and measurable outcomes. To do this most successfully, sales professionals can implement the principles of value selling to ensure the business case they present is timebound, measurable and effectively mapped to the business issue an individual client must solve.

When we train B2B sales teams, I often see confusion between the value proposition and value selling. To make the distinction, the value proposition is the company’s “big promise” to the marketplace, but that’s not the same as value selling. Value selling is a sales professional’s ability to take that broad promise of their product or service and sit down with an individual client to quantify the specific impact on the client’s business. It might seem like a small distinction, yet our research shows it’s often the difference that wins the deal.

Value selling aids in the creation of a tailored business case by translating your company's value proposition into measurable, quantifiable outcomes for the customer. It answers the question, “What tangible benefits can we expect from this investment?” This customer-centric approach not only strengthens the business case but also positions your sales team as valued collaborators.

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To make a business case more effective, include specifics about ROI and COI, and understand the impact of other initiatives that could compete with your company’s proposed solution. Let’s delve into how these can be included in the business case.

Return On Investment

Understanding ROI is crucial: Will the benefits outweigh the costs? For example, at our company, we show clients how investing in a proven sales methodology yields measurable revenue increases. ROI can also encompass cost savings, such as replacing multiple software solutions with one platform to cut expenses.

However, ROI alone isn't sufficient. The change must be significant and address a pressing problem. Sales leaders should guide their teams to ask, “Would they use our product or service if it were free?” If customers don’t see the value, they won’t buy it. Sales professionals must help prospects connect the dots, drawing a straight line of acknowledgment and confirmation from the business issue to the underlying problems and ultimately to your solution.

When building a business case, use realistic numbers to drive decision-making. While ROI calculators can be helpful, the figures must be believable to create urgency. Overstated savings can backfire, diminishing trust and urgency.

The Cost Of Inaction

Recognizing the COI is also essential to craft a compelling business case. COI represents the losses incurred from not taking action or delaying decisions when opportunities arise or problems persist. This concept, also known as opportunity cost, is a powerful motivator for decision-makers.

A classic example is Kodak , where engineer Steve Sasson invented the portable digital camera in the 1970s, but the company allegedly didn't fully develop the technology due to concerns about impacting film sales, the company’s bread and butter. When Kodak's digital camera patent expired in 2007, they subsequently filed for bankruptcy in 2012 and faced significant losses for their inaction.

Encourage your sales team to identify and quantify these costs clearly to understand the potential negative consequences of maintaining the status quo. Whether it’s market share erosion, lost revenue opportunities or increased operational inefficiencies, illustrating COI can drive home the necessity for change. By doing so, your team can effectively motivate clients to move forward with confidence, positioning themselves as trusted resources in the decision-making process.

Non-Competing Initiatives

Help your team understand that even in non-competitive scenarios, their proposals compete for internal funding against other initiatives. Senior management often compares investments across departments. For instance, if the VP of Operations proposes software to automate shipping, the CFO or COO will weigh this against other requests, such as the VP of Sales wanting to hire more staff. Your team needs to build cases that highlight your solution’s superiority and strategic value. They must ensure their proposal stands out against other internal priorities as well. Help them understand that winning in their category is just the first step—they must also make a strong case for securing capital in the boardroom.

What Goes Into The Business Case?

Building a robust business case is pivotal for your sales team's success. Guide your team to have meaningful conversations with clients to uncover metrics that demonstrate increased returns and hidden savings. Encourage them to think like an executive and review financial statements, annual reports and relevant news. For privately held companies, investor plans can provide valuable insights.

Aligning sales efforts with the customer’s strategic goals adds value at every step of building a business case. Instill confidence and illustrate clear, quantifiable benefits for your prospects. This value-selling approach helps your team secure the necessary buy-in to win the deal and ultimately create customers for life.

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US Supreme Court may force change in Iowa tax sales that could cost you your home equity

For decades, Iowans who have fallen on hard times have lost homes or property because of unpaid property taxes and fees under a state law that gives investors who pay those debts an ownership interest.

That's what happened this year to Terry Ray VanDerSluis, 63, of Prairie City, who owed $1,057 in back property taxes after a 2021 accident left him disabled and he lost his job of more than 40 years at a Des Moines plastic factory. VanDerSluis applied for Social Security Disability Insurance, but that notoriously slow process was made even slower by the COVID-19 pandemic.

At a tax sale in Jasper County, Tulip 22, a limited liability corporation from Jacksonville, Florida, won the opportunity to pay VanDerSluis's back taxes and fees and, under Iowa law, charge him interest ― up to 24% a year, one of the highest rates in the country ― until the debt could be repaid.

When VanDerSluis couldn’t afford that, Tulip 22 gave him notice that it intended to take his $71,600, paid-off home and all the equity he had in it.

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The county treasurer tax sales that give investors an interest in delinquent properties happened this month all over Iowa. But a U.S. Supreme Court decision last year is having far-reaching implications in states such as Iowa where the law allows others to take a property over back taxes.

Why treasurers and investors might want to know more about Tyler v. Hennepin County: The nation’s high court decided that the county went too far when it took more than it was owed from a taxpayer who was behind on her property taxes.

Justices said keeping all the proceeds from the sale of the woman's condo after paying the overdue taxes and fees constituted a “classic taking” in violation of the Fifth Amendment, and required an overhaul of the state's property tax sale system.

In the Minnesota case, which justices overturned unanimously on appeal, Hennepin County had foreclosed on Geraldine Tyler's condo because she owed $15,000 in property taxes and other associated costs. The county seized the condo and sold it for $40,000, keeping all of the proceeds. The court found Tyler should have been entitled to the $25,000 surplus home equity.

Iowa's tax sale system is a little different from Minnesota's, but still could be affected along with those in many other states, legal experts say.

Litigation could reshape Iowa's tax sale law

Each year, county treasurers in Iowa are directed under Iowa codes 446-448 to conduct an open competitive bidding process related to properties with unpaid property taxes.

Investors compete against one another to win a property tax certificate on properties with overdue taxes at those public auctions so they can collect 2% a month, or up to 24% percent a year, on top of the overdue property tax debt and fees from the owner.

The sales help treasurers ensure back property taxes are paid. They also can be very lucrative for investors, and draw people from around the country to participate.

But in Iowa, the investors, or tax-sale certificate holders, not the county itself, typically becomes the ones to exercise their interest in the property ― and under current state law, they can take deed to the property after two years with a 90-day notice.

It doesn't happen often, as owners of valuable properties typically don't allow them to fall that far behind on property taxes, but as in VanDerSluis' case, homeowners are at risk of losing not just the amount owed for back taxes and interest, but their remaining equity, as well.

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Because the Iowa Legislature didn't attempt to make any changes this year to Iowa's tax-sale law, litigation could force Iowa's courts to interpret its constitutionality.

Those court battles could prove costly for county treasurers or private investors who allow a property worth far more than back taxes owed to be taken from their owners.

Nationally, challenges to existing state laws, including in Iowa, are playing out across the country as advocates for the poor ― along with those who champion the rights of property owners ― look for cases to test existing state laws.

Alex Kornya, litigation director for Iowa Legal Aid, said VanDerSluis's case, filed this spring, was the first the organization chose to challenge Iowa's existing law. But it was settled quickly, allowing VanDerSluis to keep his house.

Kornya said he has four other cases he's considering filing soon so other low-income clients don't lose their homes. He said Iowa Legal Aid typically learns about the cases when low-income and disabled people seek legal help over an eviction.

"We keep getting closer and closer to litigating this issue," he said. "But we have to wait long enough to know damage (involved in a case) isn't speculative."

Iowa county treasurers looking at potential litigation

Kornya said odd bedfellows like the National Consumer Law Center and far-right property rights organizations have taken an interest in changing state laws as "they have been at wit's end over these tax sale foreclosures." Iowa's law has been controversial, in part because it allows investors to charge such high interest.

"In every state, there's going to need to be a fight," Kornya said. "We've already started filing cases. Others will be too. You never know what will happen. … But I think there's a very strong argument that the issues that existed in Tyler, the same loss of equity, are here, too."

The legal cases will typically involve both the county treasurer and the investor.

More Watchdog: How did Prairie Meadows go from a turkey to Polk County's golden goose?

"There's certain relief you can't get unless you sue the investor too," Kornya said.

About half of U.S. states use some sort of forfeiture system like Iowa's. Kornya said Iowa's constitution has even stronger language protecting a homeowner's property rights than the U.S. Constitution.

Kristi Harshbarger, general counsel for the Iowa State County Treasurer's Association, said she is assembling a committee of treasurers, county attorneys and county supervisors who will be discussing potential legislation to bring to lawmakers next session.

Harshbarger said she has sat in a couple webinars on the subject since the Supreme Court decision, and Iowa's system isn't on a list of those most in need of change as a result.

"But that’s not saying there aren’t ways to make it better," she said.

Lee Rood's Reader's Watchdog column helps Iowans get answers and accountability from public officials, the justice system, businesses and nonprofits. Reach her at  [email protected] , at 515-284-8549, on Twitter at  @leerood  or on Facebook at  Facebook.com/readerswatchdog .

How hard is it to buy a home right now? The new NBC News Home Buyer Index measures the market

Why is it so hard to buy a home? Prices have far outpaced middle-class incomes. Mortgage rates are above 7% for the first time since 2002. And 3 out of 10 homes are sold above listing price.

But none of those factors fully captures the variety of challenges buyers nationwide face in the current market. The conditions on the ground can vary widely across state and even county lines.

To better capture how housing market conditions shift at the local level — as comprehensively and in as close to real time as possible —  we’re introducing a new monthly gauge: the NBC News Home Buyer Index.

The Home Buyer Index, which NBC News developed with the guidance of a real estate industry analyst, a bank economist from the Federal Reserve Bank of Atlanta and other experts, is a number on a scale of 0 to 100 representing the difficulty a potential buyer faces trying to buy a home. The higher the index value, the higher the difficulty. 

A low index value, of 10 for example, suggests better purchasing conditions for a buyer — low interest rates, ample homes for sale. Chambers County, Texas, near Houston, is one of the 50 least difficult places to buy in in the country as of May, with low scores on scarcity, cost and competition. 

A high value closer to 90 suggests extremely tough conditions, which can result from intense bidding, high insurance costs or steep jumps in home prices relative to income. Prices are soaring in Coconino County, Arizona, making it one of the 25 most difficult counties to buy a home in as of May. Five years ago it was ranked 300, but the median sale price has increased 81%, nearly twice the national figure.

The index measures difficulty nationwide, as well as on the county level, in the counties where there’s enough homebuying data to make informed assessments.

The national index, presented below, captures the big-picture market and economic conditions that affect homebuying across the U.S.

This index consists of four factors: 

• Cost: How much a home costs relative to incomes and inflation — as well as how related expenses, such as insurance costs, are changing. 
• Competition: How many people are vying for a home — and how aggressive the demand is. This is measured through observations including the percentage of homes sold above list price and the number that went under contract within two weeks of being listed. 
• Scarcity: The number of homes that are on the market — and how many more are expected to enter the market in the coming month.
• Economic instability: Market volatility, unemployment and interest rates — reflecting the broader climate in which home shoppers are weighing their decisions. 

For May, the overall Home Buyer Index nationally was 82.2, down slightly from April and nearly 6 points lower than it was this time one year ago.

Improvements in market competitiveness and the broader economy have eased conditions somewhat within the past year. However, high costs and continued housing shortages have kept overall homebuying difficulty high.

The index updates monthly on the Thursday after the third Saturday of the month. The next update is July 25.

Methodology

The NBC News Home Buyer Index combines real estate and financial data with forecasting techniques to assess market conditions from a buyer’s perspective. 

The perspective is framed as a combination of factors shaping a buyer’s experience of the housing market: cost, scarcity, competition and overall economic instability. 

Each factor is measured by a monthly analysis that takes the following approach: 

• Data is collected from sources including Redfin , the Census Bureau, the Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis. 
• The data is then cleaned, filtered for quality and transformed to address properties that are needed for statistical analysis, including stationarity and seasonality. 
• The data is then brought to a monthly frequency where appropriate, among other steps. 
• The data is scaled to make component variables comparable.
• Finally, the data is combined to generate a single, aggregate measure of homebuyer difficulty. The final output is a single value between 0 and 100, where 0 represents the least difficult market possible and 100 is the most difficult. 

NBC News worked with real estate industry experts to refine the data that would best answer the question ‘How difficult is it to buy a home in the U.S.?’ The experts came from the Federal Reserve Bank of Atlanta, and Redfin.

Caveats to this analysis include variation in data availability at the county level, which is generally tied to market size, which correlates with regional characteristics such as population count. Therefore, systematic gaps affect low-population counties, leading them to be underrepresented.

In addition, recent index values may shift slightly in future releases as final data comes in.

Jasmine Cui is a reporter for NBC News.