- Determine if you are outperforming your market
- Determine if you are underperforming your market
- Identify the growth potential of your current market mix
Simply put, those are the top three reasons you should be benchmarking your sales against your customized weighted market index.
Have you ever asked yourself, or been asked, how you are performing in comparison to the market? I’m sure you have! A customized weighted market index is simply an aggregate dataset for your markets, each weighted according to the proportion of your sales attributable to that market.
If you are a US-based business, most of the market data is available via websites for government agencies such as the Federal Reserve Board and US Census Bureau. For other regions' datasets, you may need to subscribe to a paid service, such as CEIC.
How to Get Started
Identify datasets to represent each of your markets, analyze the timing relationship between each dataset and your sales, shift the data based on the appropriate lead time, rebase datasets as needed, aggregate the data based on the breakdown of your sales by market…and voila! You have created a picture of your Total Market.
From there, you can move the raw monthly figures into monthly moving averages and rates-of-change to begin identifying trends within your Total Market.
Then, you use your monthly sales figures to calculate your own rates-of-change and compare them with the growth rates of your Total Market Index.
This is where the magic of this type of analysis truly begins to happen.
If you find that your growth rate exceeded that of your Total Market Index for a period of time, it begs the questions:
- “What did we do so well during that time?” and
- “What happened that made us grow faster than the market?”
This provides great fodder for any management meeting.
If you find, on the contrary, that you underperformed your Total Market Index, either consistently or particularly egregiously at a certain point in time, your management team’s conversation may involve questions such as:
- “Do we have a quality control issue?”
- “Do we have a put-to-market issue?”
- “Are these the right markets for our products?”
Finally, adding a forecast for your Total Market Index to the mix provides an added value to the conversation.
Knowing the growth potential of your current market mix, and having forecast projections for each of your individual markets, allows your management team to identify possible changes needed in the market mix.
A great exercise is to leave the index weightings stagnant for a year, make the internal changes necessary to target the markets with the most growth opportunity, and watch to see if your sales surpass the growth rate of your Total Market.
If they don’t, then perhaps you just grew as the economy suggested, and your internal “lever-pulling” did not provide the impact you expected. Not the ideal outcome, but knowing the bad along with the good is a necessity for any business that wishes to grow.
Kimberly Clark
Director of Sales and Marketing
ITR Economics
