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How to Interpret and Learn from POS Sales Reports

Lori Fairbanks
Lori Fairbanks

POS systems come with dozens of sales reports that can give you a wealth of statistics about your business. Most systems have a dashboard that displays key metrics plus a variety of reports that you can customize with filters to get an in-depth look at your sales data.

The at-a-glance information on the dashboard is extremely useful – it's a barometer that shows you an overview of how your business is doing, with graphs and lists that show key metrics such as how many sales you've made for the day, whether your daily sales volume is trending up or down and which products your customers buy the most. You'll want to check this information at least once a day to get a feel for what's normal for your business.

The reports give you a comprehensive look at your data, so you can dig into the numbers and find specific information about your sales, products mix and inventory levels, employee performance and customer preferences.

With so much data available, the challenge is figuring out how to sift through it to find insights that help you identify what's working well, which issues that you need to fix, areas where you can improve and opportunities that can help your business grow. Here are four steps that can help you interpret and learn from POS sales reports.

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1. Start with a question.

The first step is to decide what you want to learn from the POS sales report data. What specific questions do have about your sales, products, inventory, employees or customers? Do you want to know whether you should reorder a certain product? Do you want to know if the promotion you ran last week was successful? Do you want to know which employee routinely has the highest sales volume? Do you want to know who your best customers are and what product categories or brands keep them coming back to your business?

Asking the right question helps you narrow in and focus on the data that can answer it and help you gain a better understanding of what's happening with your business, so you can make informed decisions. [Interested in finding the right POS system for your small business? Check out our best picks and reviews.]

2. Gather and measure data.

Once you figure out the question, the next step is to decide which report can give you the data you need to answer it. You also need to decide if there are filters you need to apply to find the right data set, such as date ranges. There may be multiple reports or filters that allow you to look at the data from different angles, augment it with additional details or isolate it from other variables.

Next, examine your sales data over time – compare your current data to the previous day, week, month and year. This helps you figure out your sales averages and gives you a benchmark to measure current numbers against.

 Jim Barksdale, the former president and CEO of Netscape said, "You cannot manage that which you cannot measure." If you don't know what your averages are – if you don't "measure" your data by comparing it against historical numbers, you won't be able identify abnormalities that alert you that something – either good or bad – is going on with your sales.

The next step is to look for patterns in the data. This can give you insights into your customers' buying habits, revealing information such as seasonal trends or showing you whether or not your latest promotion brought in more customers than normal or contributed to a higher volume of sales in an ordinarily flat time period. This information can help you plan ahead, and decide whether you should increase, decrease or hold steady on reorder quantities, promotional efforts or other activities.

In a Forbes article, CEO Vishal Agarwal says, "If we are too deeply ingrained in the details of deriving the numbers and do not take a step back to look at the larger picture, it can often lead to mistakes." For instance, if you notice an item that was hot three months ago is now one of your worst-selling items, should you discontinue the product? What happened to cause the drop in popularity?

Perhaps if you look at the sales data for this product over a larger period of time, you'll discover that it's a seasonal item, and find that your low sales numbers are consistent for this time of year. Seeing how sales trend for this item helps you decide how to move forward. Maybe you decide to remove the product from your set this season, but order extra before it's in season next year so you have plenty on hand when your customers want it.

Data patterns can also help you identify opportunities for cross-selling. If you discover that customers tend to purchase certain items together, you can make it easier for customers to find related items, either by displaying them together, offering them as a bundle or asking the customer if they're interested in the related item when they place their order or at checkout. For instance, if a customer orders a desk, perhaps they'll be interested in buying a chair to go with it, especially if they receive a discount if they purchase the items together.

4. Apply context.

To interpret the data trends that you find and learn from in your sales reports, you also need to apply context. Context is the information beyond the statistics that explains why customers are purchasing (or not purchasing) certain items. It can be external, such as seasonality, weather, road construction, competitor actions or supplier activities – such as tariffs, pricing increases, discounts or special deals. Or, it can be internal, such as gaining or losing employees, adding or removing products or services, running promotions or raising prices.

Bringing context to your POS sales reports helps you understand the story behind the numbers, so you can interpret what's really going on with your sales. In an article for Entrepreneur, CEO Karl Hougaard writes, "Understanding what lies behind the statistics – why the numbers matter – is more important than the raw numbers on their own." Context may be able to explain why you had a sudden uptick in sales for a certain item, an unusual drop in foot traffic, or other anomalies.

Having the story that explains the data helps you respond appropriately to it. For example, if an item is suddenly popular, contextual information can help you decide if you should rush to reorder a larger-than-usual quantity of an item, or if you should be cautious and reorder the same amount as usual.

Expanding on the above example, imagine you have a children's clothing store and suddenly sell out of the little white gloves that you usually sell just a few pairs of around Easter and Christmas. Finding out that a local dance class is using them as part of a costume for an upcoming performance explains the demand. This is important, because if you don't know the context – in this case, what caused the demand – you may assume it's a trend and reorder a much higher quantity. Then, because it was a one-time occurrence, you would be left with a large amount of overstock that you must sit on or deeply discount to move. Whereas with the context, you realize that it's a one-time occurrence and decide to restock at the same levels as before.

Interpreting and learning from POS sales reports is an ongoing task that you'll perform on a regular basis as long as you run your business. As you get more familiar with your data and your POS system, the process will get easier. You'll be able to ask more in-depth questions about your sales numbers, product mix, employee performance and customer behavior. You'll figure out which reports and filters will lead you to the answers to your questions and what patterns you should look for in your data. You'll also put the data in context and consider how various factors have contributed to the story that your sales figures are telling you so that you can make smart decisions that help your business prosper.

Image Credit: LeungChopan/Shutterstock
Lori Fairbanks
Lori Fairbanks,
Business News Daily Writer
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Lori Fairbanks has years of experience writing and editing for both print and online publications. After graduating from Brigham Young University with a Bachelor of Arts in English, she worked as a magazine editor and then as a freelance writer and editor for a variety of companies, including marketing firms and a medical university. She now writes about small business finance, including accounting software, credit card processing and point-of-sale systems for business.com and Business News Daily.