One of the ques­tions we often hear from our busi­ness clients is, what did my rev­enue do this month? While this is a stan­dard ques­tion, it is not always the best ques­tion to ask and not how we typ­i­cal­ly ana­lyze the results of the busi­ness.

There are many fac­tors that can impact rev­enue on a month to month basis, so always com­par­ing rev­enue to pri­or months to see if it increased or decreased will not always tell you the com­plete pic­ture of the busi­ness. For exam­ple, if the best month of the year is always Sep­tem­ber, com­par­ing the results of Sep­tem­ber to August is a mean­ing­less exer­cise and will not tell you what is real­ly going on in the busi­ness.

Here at Mack­ey Advi­sors, we like to look at the rev­enue rate of growth for both a three-month peri­od and twelve-month peri­od to fig­ure out what is hap­pen­ing in the busi­ness and if there are red flags that need to be addressed before it is too late. The graph below depicts the type of chart we typ­i­cal­ly look at with our clients to under­stand what is going on.

 

 

As you can see from the chart above, the trail­ing three-month peri­od is a lead­ing indi­ca­tor of what is ulti­mate­ly going to occur with the twelve-month peri­od. If you are expe­ri­enc­ing three-month sales growth on a con­sis­tent basis, you will start to see the trail­ing twelve-month peri­od to increase as well. So, while the above chart is indi­cat­ing a sol­id year from a growth per­spec­tive as both the three-month and twelve-month data point is at 18% for the year, there is one red flag we see based on the analy­sis of the chart. The three-month growth has slowed down and declined from June 2018 to August 2018 and there­fore is an indi­ca­tion that our twelve-month rate of rev­enue growth will start to decline as well.

This would indi­cate to us the sales pipeline has weak­ened or not as much focus is being placed on mar­ket­ing the busi­ness. If you start to expe­ri­ence a decline in rev­enue growth or have neg­a­tive growth over a three-month peri­od that becomes a pat­tern, it should alert you there is some­thing wrong in the sales process and needs your atten­tion. If you were just exam­in­ing the results month over month, you would prob­a­bly not pick up on the rev­enue rate of growth until it is too late. By review­ing the rev­enue rate of growth on a three-month and twelve-month peri­od, you will bet­ter under­stand how the busi­ness is per­form­ing and if there are any indi­ca­tors there are poten­tial prob­lems in the sales process.

It is true that rev­enue is impor­tant to any busi­ness.  So, mak­ing sure you under­stand what those rev­enue trends are telling you is very impor­tant to being suc­cess­ful and mak­ing the right deci­sions at the right time, instead of the wrong deci­sions at the wrong time.

As always, if you have any ques­tions or would like to learn more, feel free to reach out to any of us at Mack­ey Advi­sors (859) 331‑7755.