What is revenue analysis?
Revenue analysis is the process of evaluating the relationships between different business activities with regards to time, cost, sales, revenue, and other data. When it comes to analyzing revenue, this process can produce a great deal of information that can be used to make strategic decisions about your business. A typical revenue analysis may use raw data from financial statements or income-generating transactions to determine which products or services are more lucrative than others. Revenue analysis also uses cost benefit analyses and comparison-based techniques in which you compare different types of revenue to analyze how best they should be applied in your business.
Why revenue analysis?
It is important to analyze revenue in your business because it can help you make more informed decisions about how to effectively increase your profitability and productivity. When you analyze revenue, you are able to consider the costs involved in generating these transactions as well as the gains that resulted from them. Such information can be used to determine which aspects of your business are most productive and which aspects should be adjusted or eliminated altogether based on their cost-benefit ratios.
Types of revenue analysis
There are several different types of revenue analysis that can be employed by businesses. Some of these involve using metrics while others use cost-benefit analyses or comparison-based techniques.
Revenue analysis using metrics
The process of analyzing revenue using metrics is one of the simplest approaches to revenue analysis. This method involves the use of various financial ratios that are derived from your company’s income statement or balance sheet. These ratios can then be used to compare different aspects of your business to each other. When you do this, you are able to determine which aspects of your business are most productive and which ones require adjustments in order to improve their productivity for maximum profitability.
Three of the most commonly used financial ratios for revenue analysis include:
1) gross profit margin; 2) net profit margin; and 3) operating profit margin.
Revenue analysis using cost-benefit calculations
The most recommended approach to revenue analysis is the use of cost-benefit calculations. This approach allows you to compare different aspects of your business with its competitors in order to determine which parts are most profitable for you, which are less profitable, and which are simply not efficient enough. The results of your revenue analysis using cost benefit will identify the components in your business that are most effective or efficient at generating revenue, which components require adjustments or adjustments to their prices in order for them to become more profitable, and which components are simply not worth the costs involved.
Three of the most popular types of cost-benefit calculations for revenue analysis include:
1) price to sales ratio; 2) gross margin ratio; and 3) gross profit margin ratio.
Revenue analysis using comparison-based techniques (comparative analysis/surveys)
The approach that we will explore in this article is the use of comparison-based techniques when conducting a revenue analysis. A comparison based technique, such as a survey, simply involves gathering information from one or more competitors in your industry and then comparing this information with your own business in order to analyze which aspects of your business are more effective and efficient than others in generating revenue. When you do this, you will be able to determine which aspects of your business should be adjusted or eliminated altogether based on the results of the comparison.
Three of the most popular types of comparison-based techniques for revenue analysis include:
1) a market survey; 2) customer surveys; and 3) financial analysis.
In order to conduct a survey, you simply have to choose a method from the list of three popular types of comparison-based techniques and then select some competitors from your industry. If your industry involves a great deal of competition, it will be difficult for you to find more than two or three competitors that will participate in your survey. Most of the time, you will only be able to choose one or two competitors in your survey, but if your industry involves very little competition, it is possible that you will be able to complete a large number of surveys.
How does revenue analysis work?
Given that the topic of revenue analysis is relatively complex, it is important to note that it works in an entirely different manner than just about any other type of standard business or personal development activity. When you analyze revenue with this approach, there is definitely no direct correlation between sales levels and salespeople required. Such a situation would most likely result in the termination of salespeople who are generating too much revenue relative to their productivity.
Some salespeople may generate the most revenue in your business, but this does not mean that they are the most productive salespeople. If they are not generating enough profit for your company after you take into account the costs of their salaries, commissions, and related expenses (e.g., office space rental or equipment leasing), then they may be costing your business more revenue than they actually generate.
As a result of this limitation on how closely revenue analysis correlates with productivity, you have to be prepared for its wide variety of results. You may find that your top-performing salespeople who generate the most revenue for your business are not as productive as those who generate just a little bit less. As a result, you may have to change the compensation structure of those top-performing sales people in order to make them more productive and increase the profits of your business.
If you want to increase profitability and productivity in your business, it is recommended that you review its revenue analysis regularly – at least monthly – with a team member or manager. It may be necessary for you to obtain the most accurate results possible by collecting information about key revenue-generating competitors of your business. Sometimes an internal review and analysis is beneficial but most times, the most beneficial analysis v=can only be done by someone outside your business who can objectively examine every aspect of your service and product delivery and proffer adequate solutions to areas found to be lagging. Finding these external revenue analysis however can be tricky but Fintalent, the hiring and collaboration platform for tier-1 strategy and M&A professionals offers a pool of freelance consultants to meet all your revenue analysis needs.