All things being equal, the more product or services your business sells, the more successful your business will be. Measuring your revenue shows how successful you are at shifting product and selling services. The revenue percentage change metric is a method of comparing this year's or this quarter's revenues to those of the last year or quarter. It shows at a glance how fast your business is growing or shrinking.
Decide What Periods You're Measuring
The revenue percentage change shows the proportion by which your sales increased between two periods. The first step is to decide which two periods you're comparing – this year versus last year; this month versus last month; this quarter versus the immediately preceding quarter; or this quarter or month versus the comparable quarter or month for the previous year, for example Q1 in 2017 versus Q1 in 2018. You'll have your own business drivers for deciding what periods to measure. Just make sure they are of comparable length.
Run a Simple Math Calculation
Next, gather revenue figures for the two periods you're comparing. So, if you're measuring Q1 of the current year with Q4 of the previous year, you'll need revenue figures for those two periods. Find these numbers at the top of the company's income statement. To calculate the revenue percentage change, subtract the most current period's revenue from the revenue for your earlier period. Then, divide the result by the revenue number from the earlier period. Multiply that by 100, and you'll have the revenue percentage change between the two periods. In math terms, it looks like this:
(Current period's revenue - prior period's revenue) ÷ by prior period's revenue x 100 = revenue percentage change.
Suppose your company reported $50,000 in total revenue in Q4 of last year and $60,000 for Q1 of this year. This quarter's $60,000 minus last quarter's $50,00 is $10,000 in actual revenue growth. Now, we divide the $10,000 by last quarter's $50,000 revenue number. That's 0.2, multiplied by 100 gives us 20 percent. This company is doing extremely well and generated revenue that was 20 percent higher than in the previous quarter.
What It All Means
A positive number means your revenue increased, while a negative result means that your revenue declined. The higher the percentage, the stronger the improvement or decrease. That's not the entire picture, however. Most often, a company puts revenue on its income statement when the money is earned. That's fine if you're selling bath products to consumers. But if you're selling software to a business with ongoing support, for example, the money may come in part when you sign the contract and again in drips over several months or years. Events like this manipulate the revenue change percentage depending on when you record the revenue. It's important to take repeated snapshots over multiple periods to get a true picture of your business' revenue growth.
Jayne Thompson earned an LL.B. in Law and Business Administration from the University of Birmingham and an LL.M. in International Law from the University of East London. She practiced in various “Big Law” firms before launching a career as a business writer. Her articles have appeared on numerous business sites including Typefinder, Women in Business, Startwire and Indeed.com.