A month­ly sales chart, when uti­lized prop­er­ly, will tell you how your month­ly sales stack up to oth­er months with­in the time peri­od.  Track­ing your sales num­bers is a great way to eval­u­ate how sea­son­al­i­ty affects your sales num­bers. How­ev­er, they are not an espe­cial­ly good way to track the wel­fare of your busi­ness as a whole.

For a more com­pre­hen­sive under­stand­ing of your over­all busi­ness­es per­for­mance, a trail­ing 12 month (TTM or T12M) fig­ure is more use­ful.  To under­stand why the TTM  num­bers are a bet­ter indi­ca­tor of com­pa­ny per­for­mance, let’s exam­ine the two charts below: Month­ly Sales – 2009 and Month­ly Sales – 2010. 

A cur­so­ry view would give the impres­sion that 2010 sales were the same as 2009 sales.  A cou­ple of mid-to-late-year spikes would be encour­ag­ing, but the drop off at the end of the year would cause con­cern.   This chart would indi­cate a need to address sea­son­al­i­ty issues relat­ed to sales.  How­ev­er, it would not paint a real­is­tic pic­ture of the company’s over­all health.

Month­ly Sales 2009

 

Month­ly Sales 2010

The TTM chart removes this sea­son­al­i­ty from the equa­tion.  It is cal­cu­lat­ed by first adding a year’s worth of month­ly data to pro­vide a 12-month fig­ure.  Then, for the next year, as a new month is added, a begin­ning month of the pre­vi­ous year is dropped from the equa­tion.  Thus, each point on the graph rep­re­sents that month’s sales plus the sales from the pre­vi­ous 11 months.  Below is a chart, TTM Sales 2008 – 2010, show­ing what the above data would look like when recal­cu­lat­ed as TTM fig­ures.

As you can see, the TTM graph lacks the volatil­i­ty of the month­ly sales graphs above.  It does reflect a dip in sales from May 2009 to June 2009, but shows that the com­pa­ny con­tin­ues to grow despite sim­i­lar dips in 2010.  Unlike month­ly sales charts, any down­ward trends on a TTM chart are to be giv­en imme­di­ate and seri­ous atten­tion.  These are warn­ing bells – a call to action.  These dips do not reflect sea­son­al­i­ty, but rather indi­cate that the over­all health of the com­pa­ny is in jeop­ardy if changes aren’t made. 

Togeth­er the month­ly sales charts and the TTM charts can pro­vide you with use­ful tools for improv­ing your over­all sales.  The month­ly fig­ures show you where sea­son­al­i­ty impacts your busi­ness and is a visu­al image of where you need to shore up sales.   The TTM chart rep­re­sents the over­all health of your com­pa­ny and is not only a good ear­ly-warn­ing-sys­tem, but can be built upon as a fore­cast­ing tool.  Please con­tact your Mack­ey Advi­sor if you’d like to know more about adopt­ing TTM sales track­ing in your busi­ness.