A sales index of over 100 indicates a year in which sales exceeded the base year's totals, while a number of less than 100 shows that the current year's sales under-performed in comparison to the base year. Managers can analyze sales index numbers to determine the success or failure of the company's overall sales strategies.
The base year acts as the measurement standard for future sales. The selection of the base year depends on the company's objectives when measuring the sales index. Start-ups might choose their first year as their base year. This enables them to follow sales trends since the company's inception.
Managers can use the annual sales index to determine if the company is reaching its sales goals. In the XYZ Software example, the manager can see that sales were strong in 2012 and 2013, but took a sharp dive in 2014. On a broader scale, economists use sales index numbers to measure different sectors of the economy.