For many businesses, Christmas is their biggest season and a great opportunity to build up some healthy cash reserves. So, how can you make the most of the Christmas period for your business? What’s the star product or service that you’ll be offering this year? Use this quick guide to help you find the “sweet spot” between profit margin and revenue.
1. Find your high-revenue products
Understanding revenue is an important first step to identifying your star Christmas product - since revenue is your sales volume (the number of units that you sold) multiplied by price, looking for your high-revenue products will hopefully help you spot popular products that make a big difference to your business.
To identify your high-revenue Christmas products, look through your historical sales figures and rank all of your products and services by revenue over a fixed period in order of how much they earned you. If your business was operating last year, use the month of December, but if your business is new, just use a fixed period that has a good amount of sales in it (but keep any obvious seasonality in mind - for example, ice lollies may not sell well at Christmas!). To calculate your revenue figure, just multiply your sales volume by your price - for example, if you sold 500 units of a product that cost £25, your revenue in December would be £12,500.
Say you run a bakery - here’s what your revenue table would look like:
|Product or Service||Revenue last December|
|Lemon Drizzle Cake||1.985|
2. Find your most profitable products
You might think that your product with the highest revenue is obviously your star product, but don’t forget the other essential ingredient to a successful product or service: profitability. If Christmas is a great season for you, you’ll want to take advantage of this peak period by identifying your products with the highest margins.
As your next step, create a similar ranking table for your products and services, ordering them this time by their profit margin.
In our hypothetical bakery, here’s what that list looks like:
|Product or Service||Profit margin last December|
|Lemon Drizzle Cake||30%|
3. Find the sweet spot between profit and revenue
Now that you know your best-selling products and your most-profitable products, you can use a simple 2x2 chart to help you identify the products that lie in the “sweet spot,” or the area of both high profit and high revenue. For example, here’s a chart with our example products and services:
The 2x2 chart makes it really easy to spot the products that have both a high profit margin and generate high revenue. For example, while cinnamon muffins may have brought in the most revenue, Christmas puddings actually offer a higher profit margin, making these a great option to push this Christmas season.
4. Find the opportunities and poor performers
This chart also makes it easy to spot any potential hidden opportunities for the Christmas period — for example, while lemon drizzle cake has a great profit margin, it hasn’t historically generated a lot of revenue. Armed with that information, you could consider how to increase this product’s revenue - either by selling more of it, or by potentially increasing the price.
If you focused on promoting a low-revenue product or service more during this Christmas season, could you move it into the high-revenue quadrant, and turn it into your star product for 2014? For example, notice that on the chart, celebration cakes have healthy revenues, but operate at a very low profit margin. Is there any way to create something special for this Christmas that would allow you to charge at a higher profit margin - for example, a cake that goes along with the big toy this Christmas?
Finally, the 2x2 chart makes it pretty clear that the classic Victoria sponge cake is performing poorly against everything else. Once you know which products are performing well, it’s worth considering whether you should continue devoting resource to any low-performing products in your busiest period - perhaps the sponge is better-suited to the spring!
Just a few simple calculations and one chart can take you a long way to making more informed decisions about this critical period for many businesses - hopefully it means your holiday season will be that much sweeter!