Here’s why it is important. The sales of a product this year are a result of selling activity invested in the product this year and the selling activity of the previous year. This is crucial. If we are to take a long-term view of the business (i.e. longer than just the current year), then we must account for the return in sales we will receive in future years, from this year’s selling effort. The concept of carryover enables use to take this long-term approach.
The definition of carryover is:
The percentage of last year’s sales which would occur with no active selling activity.
For example, if a product sold $10 million last year it may be forecast to sell $12 million this year. However, if the sales force stop actively promoting the product then the sales will undoubtedly be less than the planned $12 million. Let’s assume the sales would be $8 million with no active selling by the sales force. The carryover can then be calculated as follows:
Carryover = 100 x Sales_with_Zero_Effort / Sales_Last_Year
In this example:
Carryover = 100 x 8 / 10 = 80%
This calculation is used in SizeMix to measure the sales momentum of a product.
What are the Characteristics of a High Carryover Product?
There are many factors that impact the carryover of a product. Here is a list of some common characteristics of high carryover products:
- Fast growing
- Low competition
- Highly differentiated
- High awareness – everyone knows about it
- High cost of moving to another solution
- Usually used long-term
What are the Characteristics of a Low Carryover Product?
In contrast here is a list of some characteristics of low carryover products:
- High level of competition
- Commodity product
- Low adoption
- Easy to move to another solution
- Many opportunities to try another solution
What is the Normal Range for Carryover?
There are no absolute standards when it comes to carryover. Here is a guide:
|High Carryover||90% – 100%||
|Super Low Carryover||<60%||