How to find your killer Christmas product

Emily Coltman discusses how businesses can make the most of the Christmas period by finding the sweet spot between profit margin and revenue.


Emily Coltman discusses how businesses can make the most of the Christmas period by finding the sweet spot between profit margin and revenue.

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?

Find your high-revenue products

Understanding revenue is an important first step to identifying your killer 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 might look like:

 

Product or Service

Revenue last December

Cinnamon muffins

4,776

Christmas pudding

3,658

Lemon drizzle cake

1.985

Celebration cakes

1,254

Victoria Sponge

900

 

Find your most profitable products

You might think that your product with the highest revenue is obviously your killer 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

Cinnamon muffins

20%

Christmas pudding

22%

Lemon drizzle Cake

30%

Celebration cakes

18%

Victoria sponge

11%

 

Find the sweet spot between profit and revenue

Now that you know your best-selling products and your most profitable products, you can identify the products that lie in the ‘sweet spot’ or the area of both high profit and high revenue.

It should be easy to spot the products that have both a high profit margin and generate high revenue. For example, in that hypothetical bakery, 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.

Find the opportunities and poor performers

It is also 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 turn it into a high-revenue product, and turn it into your killer product for 2013? For example, 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?

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 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!

Further reading on profitability

Emily Coltman

Emily Coltman

Emily is Chief Accountant at FreeAgent Central Ltd and a graduate of of the University of Cambridge.

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