Working it out
- Monthly sales. Revenue for each of the last six months, leaving out VAT.
- Last three months. Add them and divide by three.
- Previous three months. Do the same for the three months before.
- Change. The difference, divided by the previous average.
Trading for less than six months? Compare each month with the one before, and look at the direction over three months. Seasonal business? Compare with the same months last year.
An illustration
The figures are invented to show the arithmetic. They are not what any business should expect.
| Previous three months (R150 000, R160 000, R170 000), average | R160 000 |
| Last three months (R190 000, R200 000, R210 000), average | R200 000 |
| Change | +25% |
Sales are 25% higher. That says nothing yet about why.
Read it against your own situation
- The period before. Is the change growing or shrinking?
- Your plan. Is it the growth you expected?
- Your prices. Did you raise them? Part of the rise may be price, not more sales.
What a change could be revealing
| The signal | It could be revealing | Check | You could |
|---|---|---|---|
| Rising steadily | More customers, bigger orders, higher prices, or a large one-off job | Customers, average invoice value and one-off jobs, month by month | Find out which it is and whether it can repeat |
| Flat | New customers may be replacing lost ones, or you may be at capacity | New and lost customers over the period | Decide whether to grow or hold, and what growing would cost |
| Falling | A lost customer, a seasonal dip, or a price rise that cost you volume | Sales by customer, and the same months last year | Speak to customers who left, and check whether the dip is seasonal |
| Rising, but profit or cash is not | Growth may be coming from discounts, or from customers who pay slowly | Gross margin and debtor days | Decide which sales are worth having |
| Swings from month to month | Income may come from a few large jobs, or the business may be seasonal | Twelve months of sales, or the same month last year | Judge the trend over six or twelve months |
Try it
Your accounting software's sales report by month gives the six figures. It takes about ten minutes.
Questions people ask
What is a good growth rate?
There is no single figure. Compare it with your plan and with the growth your costs and capacity can carry.
Should I count VAT?
No. Leave VAT out, because it is not your income.