June 13, 2012

Average Item Age

... or, as the kids call it, AIA.


Average Item Age is simply the average age (years, months, your choice) of the items your customer purchased.


Look at this example:



                   AIA    Annual Sales
20123.8    $37,493,028
2011 4.3 $33,968,940
2010 4.5 $33,403,884
2009 4.3 $34,504,847
2008 4.1 $37,448,221
2007 3.9 $38,428,122
2006 4.3 $36,483,028
2005 4.7 $33,548,831



Do you notice a correlation?


When sales are up, the average age of the items a customer purchases is between 3.8 and 4.1 years old.


When sales are down, the average age of the items a customer purchases is between 4.3 and 4.7 years old.


This is a business where customers appear to prefer newer products.  When products become stale, sales suffer.


Of course, there are businesses where the opposite relationship holds ... customers trust existing product, and when you throw new product at the customer, the customer rejects it.


What matters, of course, is that you track this metric.


Show of hands ... how many of you know the relationship between Average Item Age and Annual Net Sales?