Posted in Marketing and Strategy Terms, Total Reads: 1823
Definition: Shelf Velocity
The number of weeks or days a product stays at the warehouse as inventory and/or the number of days or hours the product stays at the shelf of a store before being sold to the consumer. Shelf velocity is an important measure of sales as it tells how well a product sells when it is made available to the consumer.
Sales hence can be said to have two major components – distribution and velocity i.e. how widely available your product is (distribution) and how well it sells once it is made available (shelf velocity).
Sales = Distribution x Shelf Velocity
Velocity = Sales/Distribution
The three ways to measure shelf velocity are:
1. Sales per Point of Distribution (SPPD)
2. Sales per Million (Sales per $MM ACV)
3. Sales per Store
Sales per Point of Distribution: Also known as Sales per Point, this is a measure of shelf velocity that can be used to compare products within a market but should not be used to compare shelf velocity across markets. It is also the simplest form and can also be used to compare shelf velocity of different products within the same retail store. It is better than using Sales per Store method as it takes in account the differences in the store size, by using the All-Commodity Volume (ACV) weighted distribution method.
SPPD can be expressed in dollars or units, or volume per point of distribution.
SPDD = Sales/% ACV Distribution
Sales per Million: Stands for Sales per Million Dollars of market ACVT and is the best method to compare shelf velocity across markets. SPDD doesn’t work across markets for the obvious reason that a same size point of sale will give more sales in a bigger, more active market than a smaller market. Also, across markets, the ACV value varies too (and not only the percentage ACV).
In simpler terms, SPM means that for every million dollars ($1,000,000) of market sales, ‘X’ amount of the given product are sold. SPM can be expressed in dollars or units, or volume.
Sales per Store: This is a measure of shelf velocity that can be used to compare shelf velocity of products within a retail store or of a product across stores. Sales per Store should be compared only for a given market and not across markets.
Shelf velocity can be influenced by a number of factors like price, promotion, variety available, competitive environment etc. The company needs to make sure that the marketing efforts designed for a particular brand takes care of the above mentioned elements to achieve the optimal shelf velocity.
For example, suppose the total sales (of the product) is worth $717,288 and the ACV Distribution percentage is 69%, then the shelf velocity can be calculated as follows: