Revenue Growth Vs. SPLY (Same Period Last Year)
Most common and important use of revenue as a metric is to compare current performance against a time in the past. For large firms this will typically be managed against the performance of the previous year. For example, on May 1st you will compare Jan-Apr 2016 sales against Jan-Apr 2015 sales - hopefully seeing an increase for 2016. If you are a small firm you may want to measure growth in small periods such as most recent three months against the previous three i.e. July - Sep versus Apr - Jun.
Of course you want to see positive revenue growth as a default. However, if your business needs to prioritise profitability you may find yourself cutting high volume low margin customers so that overall revenue declines while profitability increases.
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| Declining volume and marginal revenue gains are eclipsed by increased margin in this example |
Revenue Trends
Revenue growth will typically be one number i.e. + 10%. The danger of this though is that it may hide vital information about what has happened in recent weeks or months. If you react to an overall revenue decline without appreciating recent improvements you may sacrifice margin and profitability unnecessarily, and create future difficult price increase conversations with customers.
See below an example of how an original revenue gap has been closed and is trending in the right direction. Suggesting corrective action has been successful.
Revenue performance is vital to sustaining and growing business performance. The above information will help in evaluating revenue, but you must combine it with other metrics (see here) and judge it not against simple positive or negatives, but against your agreed business goals.
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