What is Product Velocity?
Product velocity is your rate of sales. It is defined as units sold per sku per store per week. You can use this number to estimate your total sales.
Velocity= # of units sold per week per sku per store
Sales= Number of stores*Velocity
Example: If you have an average velocity of 5 with only one sku and sell into 50 stores, you should sell 250 units a week or 1000 units a month. This number will help you estimate your production needs as well. Consider adding in a growth factor for an increase in velocity and an increase in door count, depending on your marketing and sales plan.
Where is Product Velocity Used?
Product velocity indicates product performance, which is why it is a very important number in the CPG industry. Retail buyers will always want to know how your product is performing in their store and will use velocity as their base number.
If you pitch to a potential retailer, they will want to know the velocities of your other current retailers.
Total sales driven by velocity, rather than door count show a more promising future for your product. You can have very good distribution and be in a number of stores, but if your velocities are weak, it will show that your product doesn’t perform well. If you are only in a few stores, but your velocities are very strong, this is much more promising for future growth. You will need to understand your category and what is an ideal velocity for your particular product. This is why velocity is so important to understand and manage. In order to increase your velocity, you will need a strong marketing, sales, and demo plan in place to support the grow
Calculating Product Velocity
The easiest way to calculate product velocity is to gather all your data beforehand. You will need to know the following for each item or sku that you sell:
- Which retailers carry that item?
- What are my average sales for that sku per store each week? You might want to break this down between your smaller accounts and your larger accounts if the sales are significantly different.
- This number is not always easy to find. Sometimes retailers will share this information with you, if you ask. Sometimes you can get this directly from your distributor, although will be the units shipped per week not sold, so be aware of any inconsistencies in the data. Other times, you will have to pay for this data or do your best work to estimate.