Turning this data into a chart can make it easier to understand for you and your team. Next, add a “Moving Averages” trendline to show the direction of growth visually from quarter to quarter.
Already, we can start to pick out some trends in this data set. Comparing the changes between each quarter provides us some insight. However, the real value of revenue growth analysis comes once you recognize the trends and find the right questions to ask.
For instance, in this sample data, the company sees an average of a 23% decrease in revenue earned in Q3, compared to Q2. Next, the savvy analyst can start identifying causal factors that lead to drops in revenue in Q3.
Questions more helpful than "Why is this happening?" that start to send us down the right path:
- Is there anything in the company’s sales process that causes sales to drop in Q3?
- What sort of environmental factors might affect the buyer during Q3 that cause their sales to perform differently every season?
- Does marketing do anything differently between the super-productive Q4’s and Q1’s?
- What pain points do leads have during Q3 that they don’t have during other quarters?
Related Reading: Sales Pipeline Analysis Made Simple
Responding to trends
When you see your revenue growth line start to drop consistently, then it’s time to start making some major changes. The sooner you can see these problems, the better. It’s why we recommend keeping track of your revenue in a clean manner as early and often as possible. Uneven jumps or drops in your numbers might mean that your business is just victim to trends in the market that are out of your control. As an analyst or business leader, your job is to mitigate that which you can’t control ahead of time.
When you have a reliable set of data and you see steady growth or decline, you can project forward and make cautious assumptions about what your revenue numbers might look like next quarter, next year, and more. If you see jumps or drops that you can’t confidently include in your projections, identify the reasons for them and correct them as best as you can in a quantifiable manner. Using historical data, you can create a smooth line that has followed your past performance and extrapolate forward using the growth percentages you already calculated.
Attributing Growth Factors
So, at this point, you’re able to see which direction your revenue is headed and how fast, and you can start to guess why on a global level. Let’s dive even deeper by attributing the growth factors in your business.
Dividing into your Lines of Business
Breaking up your revenue number into its contributing factors is a key aspect of successfully analyzing revenue growth. One way to achieve this is to segregate your revenue number by the lines of business, products, or services that added up to it.
Look at all the revenue from each line of business comparatively. Which ones stand out? What are your worst performing offerings?
Boil it down even further by accounting for marketing costs per line of business. Add up the costs of advertising, sales and marketing wages, commissions, etc. that you can confidently assign to one product. Divide this number by units sold to see the cost behind each sale. This can help show you which of your offerings are most profitable.
Using this insight, you can confidently direct your company strategy toward the most profitable, highest revenue producing products.
Determining Real Revenue Growth
It’s important not to let your revenue growth be the only number you’re looking out for. Obviously, costs are just as equally a part of business as sales, but profit is the number that should be on every CRO’s mind. If you lower your prices just to raise your revenue with no foresight on how this plays into your profitability, then you’re playing with fire.
Revenue growth does not equal profitability, the line that makes and breaks all companies down the road.
For example, a company drops its prices by 10% and in turn, sees a revenue growth of 5%. This drop in price usually affects profitability across the board and the revenue growth can’t offset that drop. It may not need to be said, but it’s important that we at least mention this.
Take time and care to understand how each line in the Profit and Loss statement might affect each other and you’ll be in great shape.