Sales volume variance: Definition, formula, and factors influencing

Did you know that 93% of sales professionals cannot forecast their revenue up to 5% even when two weeks are left in the quarter? 

However, sales forecasting help leaders estimate their future sales revenue for a defined period. 

The revelation will help you plan your spending and suggest modifying your sales strategy to diminish fluctuations in lead flow, revenue and other influencing factors. 

Sales volume variance is one of the KPIs that contribute to sales forecasting. Therefore, knowing it is a mandate for accurate sales forecasting.

This blog talks about what is sales volume variance, the formula and how sales leaders can benefit from it to understand the business opportunity, sales and revenue. 

What is sales volume variance? 

Sales volume variance is the difference between actual units sold and the budgeted (or standard) units sold at a specific price within a specified period. 

It is sometimes referred to as “sales quantity variance,” as it is calculated based on the number of units sold. 

Sales volume variance formula explained with an example 

If you know the actual number of units sold compared to the budgeted units sold and the price per unit, calculate the sales volume variance using the formula below. 

Sales volume variance= [Actual units sold – Budgeted units sold] x Price per unit 

It is a measure that gives valuable insights into where your sales efforts are going. 

Let’s understand it with the help of an example: 

Let’s stick with our SaaS product example; now, you have projected that your sales team will sell 100 subscriptions in February. 

But, your team sold only 85 subscriptions, and each subscription is $15 per month.  

Now, let’s calculate.

The negative sign indicated an unfavorable variance(explained in the next section of the blog). 

Once you have your sales volume variance result, it helps you understand how to improve your sales performance by optimizing various impacting parameters. 

You can optimize product pricing and budgeted units count to achieve a favorable variance that directly leads to a tendency for higher profit. 

If all other variables remain equal, you should have a more accurate projection next month.  

Absorption costing vs. marginal costing 

There are two costing techniques, absorption and marginal costing, and you can implement either depending on your need. 

Find the specification in the table below: 

Absorption costing	Marginal costing
You need to consider both fixed and variable cost. (production & fixed overhead like salaries, property tax etc.)	You need to consider variable costs (raw materials, piece-rate labor, production supplies, commissions, delivery costs, etc.)
Takes net profit/unit during calculation	Takes standard contribution/unit during calculation

Sales volume variance is important 

Sales volume variance measures where your budgeted profit is going, so it is a crucial sales KPI. In addition, it effectively contributes to helping leaders to make smart data-driven decisions.Understand how with an example. 

Let’s stick with our SaaS product example;  

The basic plan is worth $23, and the pro plan is worth $39 per user per month when paid annually. 

Suppose your reps sell 500 basic and 300 growth plan in one month. 

Financial analysis indicates that sales by the basic plan made $6,000 in revenue, and sales by the growth plan made $7200 in revenue.  

Revenue count expresses that the growth plan is more beneficial for the company’s success, so you should command your sales reps to pitch aggressively for a growth plan.  

But, the sales volume analysis brings us a different perspective on the business. It indicates that you have a larger audience that finds your basic plan useful for them as the company receives a new 500 subscription. 

Therefore, calculating sales volume variance opens new perspectives to your sales that will contribute to a promising sales strategy. 

In this competitive space, you must know whether your sales efforts are in the right direction or not! 

Sales volume variance analysis

Sales volume variance can be considered a sales performance meter that tells about your financial outcomes failing or exceeding, or meeting your budgeted sales. 

Check out the table below:

Favorable sales volume variance	Unfavorable sales volume variance
Your sales volume variance would be favorable when the actual sales quantity is more than the budgeted quantity.	Your sales volume variance would be unfavorable when the actual sales quantity is lesser than the budgeted quantity.
Actual unit sold > Budgeted unit sold	Actual unit sold < Budgeted unit sold
The value comes negative.	The value comes positive.
It indicated profit tendency.	It indicates a loss tendency.

What are the key factors that affect sales volume variance? 

It is a potential sales performance gauge and is influenced by internal and external factors. So let’s dive deep in.

Internal factors	External factors
Performance of your sales reps	Seasonal impact
Changes in your sales process	Change in market trend
Change in your product pricing	Change in the competitor’s pricing
Planned supply chain alterations	Spontaneous supply chain alterations

Internal factors 

There are four essential internal factors, as discussed below. 

1. Performance of your sales reps 

Sales managers can track the sales performance of their reps, such as calls made, deals converted/products sold, etc. 

Sales activity tracking is essential to identify why your sales reps’ performance is decreasing, and you can help them improve. 

For example, if your sales reps are making 40 calls per day, then just by increasing 5 calls per day for each rep, you can significantly impact your sales volume variance. 

If you get an unfavorable variance, you can start by assigning higher goals to your team and providing the right resources for execution. 

2. Changes in your sales process 

The sales process is one of the most apparent factors and majorly impacts your sales variance, finding sales opportunities, and meeting your sales quotas.  

So, you must identify the loopholes in your sales process and optimize them for better sales. 

For example, if most of your customers are not going forward with the purchase after looking at the features, then you need to find out whether your sales team is targeting the right prospects or not.  

Identifying roadblocks in the early sales process for a positive financial impact. 

3. Change in your product pricing 

Your product pricing must resonate with its value and help it win in its competitive space. If not, the change in your product price will affect the sales volume variance. 

For instance, if there’s a vast difference between your competitors and your product despite having the same features, you need to revisit your pricing strategy. 

Analyze your product prices, see if they’re providing the right values compared to the price and then finalize them.  

So, try to keep your product/service pricing stable to be on the profitable side.   

4. Planned supply chain alterations 

Variation in product quantity supply impacts your manufacturing cost and logistics. Therefore, it significantly changes your standard contribution unit and price per unit.  

Standard contribution per unit impacts the result of favorability and unfavourability.

In this case, you need to develop a supply chain process that requires fewer modifications and can withhold different requirements. 

External factors 

There are four essential external factors, as discussed below.  

1. Seasonal impact 

Businesses must take seasonality into account as it impacts their sales performance. 

There can be seasons/occasions that can get you higher sales, like Cyber Monday offers, New Year discounts, etc., in those months.  

You must understand your business’s natural cycle to avoid a drop in sales. Startups must take this factor into account seriously. 

Moreover, you can also analyze past trends and find out which month is the most profitable and which month you need your team to work harder. 

Seasonal trends are predictable, and you can modify them in your favour.  

For example, check out the past data for the trend. If December is not a good month, historically, fewer units were sold, so there is a high probability it will also not be good this year.  

In precautions to such a trend, the business will probably try to cover the ground in September and November if the sales reports history indicates that December is not a month of good sales. 

2. Spontaneous supply chain alterations 

A sudden change in the supply chain will have an adverse impact. 

For example, suppose your current supplier backs off. Now instantly finding a new supplier is challenging. Moreover, it will largely impact your costing; thus, measuring your standard profit variance would be difficult even with a favorable result.  

For this scenario, you need to create a database of different suppliers and resources that you can directly connect with whenever any such requirement arises. 

3. Change in market trend 

A fluctuation in market trends affects your sales count greatly. Therefore, it would help to look at your sales pipeline and prospects’ interest in your product. Always be active with the latest market trend and optimize your sales strategy accordingly. 

For instance, you have communication software as a product; suddenly, all your prospects start looking for live chat software more than calls for their customer services department. This can be a new market trend for you. 

In such a scenario, you can conduct an email campaign to know your existing customer’s responses about introducing this feature. For a favorable result, it is compulsive to watch out for the marketing trend. 

4. Change in the competitor’s pricing 

A decrease in your competitor’s pricing might trouble you as your customers probably switch to them. But, a raise in their pricing might get you an excellent opportunity to grow your sales.  

So, keep track of the fluctuation in your competitor’s pricing.  

You want your sales quantity variance favorable, and the support of a smart CRM like Salesmate can make this happen. Find how in the next topic. 

How can a CRM help you get favorable sales volume variance? 

CRM software can save you time when you’re a million, billions, or trillions of dollar revenue-building company!  

Sales Forecasting enables you to identify precisely where your sales performance is going. 

Sales forecasting will be easier if you have the data on all your sales activities, such as customer interactions, deal closing, onboarded customers, etc.  

You can turn all the above influencing factors in your favor with our Sales Reporting and Forecasting features. Thus, able to fix the shortcomings and make a favorable sales volume variance.  

Salesmate CRM aligns your sales, marketing, and upper management department with sales pipeline visibility. In addition, it offers 700+ business app integrations so that you never compromise with scaling. 

Bottomline 

The sales volume variance can save your business from serious implications. It is a KPI that enables you to calculate and predict whether you’ll make on profit or loss after closing. 

To get high favorability, you must consider all the discussed factors before shaping your sales strategy. 

Optimize all internal and external factors to win more sales opportunities. 

Suppose you want to forecast your sales efforts to find whether your actions, strategy, and other factors are aligned to boost your business revenue. In that case, you must consider your sales volume variance. 

FAQs on sales volume variance