Revenue growth measures a company’s income over a certain period of time compared to the same period from an earlier date. A common comparison is to measure the growth rate in revenue for the month in the same month as last year. When using this measurement, expenses are not taken into account.
It is calculated by dividing revenue generated during one time period by the revenue generated during a subsequent time period, subtracting 1, and then multiplying by 100 to obtain a percentage. Generally companies calculate revenue growth year to year. Some companies track revenue growth from one month to the next, but this is only meaningful if the business is unaffected by seasonal factors. For companies that have revenue affected by seasonality, it makes sense to measure the growth rate in revenue for the month (or season) on the same month (or season) as last year.
Companies should look to their industry to determine if their revenue growth is in line with others in their industry. During the analysis, the revenue growth should be taken in context to avoid any misinterpretations of the data. It is easier to achieve a 10% growth in revenue when the total sales volume is lower than it is to achieve the same 10% growth rate when sales volume is higher. Often revenue growth is used to forecast future sales. The revenue growth rate will provide the trend month after month, year after year, to indicate the direction and intensity of the company’s revenue growth. By using this trend and knowing the industry and the companies’ placement within it, better forecasting can be accomplished.
Revenue growth can be even more informative if it is broken down into meaningful dimensions. By analyzing this KPI in slices, a business can better address the areas that contribute to revenue. By reviewing revenue growth by customer or customer type, the company can see which customers have steadily increased their sales, determine which customers are consistent, and see which ones have slowing sales. By reviewing revenue by item or item group, a business can determine which items are doing well and which ones are starting to decline. By being able to combine dimensions, even more direct questions can be asked and answered and the company can direct its efforts in the right direction, making sound and informed decisions.
Contact Porte Brown to obtain more information on selecting the best KPIs for your organization. Ask about how using dimensions in financial reporting can provide better information.
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