Definition
In business, there are a number of metrics that measure velocity (productivity over time):
Cash Flow Velocity
Cash flow velocity refers to the rate of sales (i.e., rate of positive cash flow divided by time). [1]
Distribution Velocity
Distribution velocity is typically sales per point of ACV or PCV distribution. It tells the business how well its product is selling when it is on the shelf (i.e., available to customers). [2]
Distribution velocity = Sales ÷ Distribution
Inventory Velocity
Inventory velocity or inventory turnover is the time period starting with receipt of raw materials or purchased inventory and ending with the sale of the finished goods to the customer (the period over which a business has ownership of inventory). It is measured by dividing the cost of goods sold by the average inventory on hand. [3]
Inventory turnover = Cost of goods sold ($) / Average inventory on hand ($)
Sales Velocity
Sales velocity is a term describing the rate at which dollars or units pass through in a given time (basically, sales divided by distribution) and measures how well a brand sells when it is available.
Two major sales velocity measures are sales per point of distribution (SPPD) and sales per million. [4]
Sales per point of distribution ($) = Sales ($) ÷ % ACV distribution
Sales per million ($) = Sales ($) ÷ [% ACV distribution x (Market ACV ÷ 1,000,000)]
References
- ^ Stewart, D., and C. Gugel. Accountable Marketing: Linking Marketing Actions to Financial Performance. Routledge, 2016.
- ^ Martin, S. “Velocity: How Well Your Product REALLY Sells.” CPG Data Tip Sheet. (June 2014)
- ^ Accounting Tools. What is Inventory Velocity?
- ^ CPG Data Tip Sheet. Velocity: How Well Your Product REALLY Sells.
- Universal Marketing Dictionary Project, 2023.