There is a danger inherent to sales teams and sales people everywhere: overloading. Overloading is evil, but its effects, despite usually short-term, do not seem to affect sales teams, who will soon oversell and overload the market with despicable effect.
Overload happens whenever you sell more than you originally forecasted. I know many forecasts are weak and prone to change according to the dynamics of the market. But in many other cases forecasts are easy to project and analyze. Accounts with a long standing history and little change in the trade channel are good candidates for very accurate forecasting. If you did your math right, and set good targets, you should hit those targets more often than not and come very close to the median of above and below the forecast target. But if you happen to surpass your target by large, let’s say anything above 10%, than you might be a victim of overloading.
I speak from experience. I have seen many times how my sales team surpassed its targets by 40% or more, only to miss them the next month (usually by the same amount, thus losing any advantage gained.) Sales managers should be very dubious of easy numbers. If you met your target and blew it out by the 20th of the month, you either had a weak forecast or most likely you are overloading the market.
Overloading has two principle problems. The first one is that since the channel can only absorb so much product, if you push too much of it you are only choking the channel and promoting a bottleneck. I know brands can gain market share thus expanding sales, but market share gains come a point at the time, sometimes even slower, thus the overload effect is usually not concomitant of market share gains. In simple words, what you sold extra this month is what your customer won’t sell this month, so he or she won’t buy next month.
The second negative effect is when overload hits retail. Too much product at the same time and sales will not grow proportionally. All of the sudden your customer will detect they have too much of your product on hand, but since sell-through will be pretty much the same, turnover of goods on hand will drop. When product moves slowly from the warehouse to the shelves retailers have to start discounting or promoting it in some way, both measures that consume resources, thus reducing their profits on your products. Retailers will not think about the overload effect (they know it, they just won’t think about that.) Retailers will think your product is moving slow and its profits are reducing, and adjust their buy long-term. This is hurtful, since your forecast will now be negatively affected.
Some will say that once the normal flow of product, or even reduced flow, starts to hit the market, retailers will have to refresh their inventories more often and will start buying more. This is truth, but it’s also truth that consumers will buy from your competitor if they cannot find your product more often than not. Lost sales to inventory adjustments from overloading usually don’t come back, again, negating any effects from the initial rush of sales abundance.
So next time your sales team is about to throw a party for that 74% above budget sales result, think twice. Companies do get lucky from time to time, but history tends to repeat itself, and most likely you are the next victim of the overload effect, something that will come back to haunt you soon.