Her profit margin increased by 18% not because she sold more ice cream, but because she stopped buying for summer in winter.
For two years, she ran her business on pure instinct. She’d order extra sprinkles in July and pray for a warm February. But she always seemed to run out of chocolate fudge right when the autumn leaves fell, or get stuck with 50 gallons of pumpkin spice mix after Thanksgiving.
And every year, she recalculated the indices using the latest three years of data, because seasons shift. A new boardwalk hotel opened, boosting spring sales. Her Spring Index crept up from 0.99 to 1.10. how to calculate seasonal variation
He drew four boxes on the napkin. "First," Leo said, "write down your total sales for each season for the last two years."
Elena pulled up her tablet. She wrote:
"Finally," Leo said, "multiply that 'average season' by each Seasonal Index."
Leo grabbed a clean napkin and a pen. "You need to calculate seasonal variation. It’s how you separate the 'normal rhythm' of your business from the 'random noise' of life. It takes four steps. Let's use your sales data." Her profit margin increased by 18% not because
"Exactly. That's the 'flat line'—what you'd sell per season if there were no seasons at all." "Now for the magic," Leo said. "For each season, divide its average by the overall average. That gives you the Seasonal Index ."