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While measures of company success vary greatly, revenue is a cornerstone financial metric listed on income statements and is fundamental in company valuations. Of course, expense management, profits, and margins are equally, if not more important, and also require tactical analysis.
Nonetheless, revenue is a universally understood metric included in most company's quarterly or annual targets and worthy of further examination. Analyzing and reporting on revenue is a great starting point to decipher what is working and what isn't for an organization.
Finance must provide more than a model or visualized analysis to be impactful. Remember, the goal of revenue analysis is not just to measure progress, but to uncover insight that can drive decision-making for the business.
It’s one thing to show a graphical representation of revenue increases in February compared to January, which is always a great sight. Yet, It's another to couple that with details and insight revealing additional ad spend for a Super Bowl commercial and three new sales representatives ending their ramp period and now closing deals.
Gathering large sums of unstructured financial data is a necessary yet oftentimes painful step in the process of extracting the gold mine of insight from your data. Accounting and finance teams are burdened with having to manually extract financial data from an ERP system like Netsuite and Quickbooks Online, or an accounting software with general ledger management functionality, and create easy to interpret charts and graphs.
ERP systems are great for managing transactions and offer a superior database compared to storing financial data solely in Excel spreadsheets. That said, ERP systems fall short in the world of financial reporting, planning and analysis.
Having to go through this process each month, week or even day, is not an optimal use of one’s capacity. Certain portions of this data aggregation can be automated with direct ERP integrations offering ongoing synchronization with the latest, reconciled financial data, giving finance full control and eliminating repetitive reporting tasks.
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When it comes to revenue there are many types worthy of the accounting and finance team’s attention to monitor. Which is most appropriate for you depends on your company’s industry and customers. That said, four of the most common types of revenue are:
1. Total revenue (TR) is a top line metric for all revenue and can be extrapolated to run rates by taking the revenue from one quarter and multiplying it by four to get the annual run rate
2. Annual recurring revenue (ARR) or monthly recurring revenue (MRR) for SaaS and other subscription-based companies. ARR is considered to be the highest quality revenue stream because it is predictable and offers more visibility to model and invest in with more confidence.
3. Average revenue per user (ARPU) for platforms, media outlets and mobile apps
4. Average revenue per customer (ARPC) for manufacturers and marketplaces
In this revenue analysis example, we’ll use balance sheet summary data automatically pulled from our ERP Netsuite, using the FutureView Foundation integration and Excel Add-in tool. The most valuable benefit of the Foundation tools for analysis is that once you set up these analysis charts once, you can update the data dynamically with the latest results with just a click or two using the Excel Add-in.
In this video, we go step-by-step to show how to calculate and graphically visualize revenue analysis for average revenue per customer and number of customers using your ERP data.
Revenue growth analysis reveals how your revenue is pacing for a given period of time. But analyzing revenue alone will not tell the entire story. It’s best to pair revenue with a customer specific metric to gain deeper insight. For example, revenue might be contracting MoM, as the number of active customers actually increases.
But how is that possible? How can we have more customers than last month but revenue was down?
One of the ways this occurs is when you have more customers bringing in less revenue per customer, while a customer or two with substantial revenue contributions suddenly churns. Customer concentration in the large enterprise level customers can be great for top line revenue, but if one of those customers were to churn for whatever reason, the hit to future revenue can be substantial and completely derail planning and even cash flow.
As we covered in the video tutorial, combo charts are a great way to show both the revenue per customer for the month via bar charts and a trend line of the active customer count. This way, you can easily keep a pulse on the active customers to revenue ratio or ARPC and quickly determine if there’s a need to dig into the churn or new customer transaction details deeper.
Revenue cohort analysis takes revenue growth a step further by revealing the who and even why behind groups of revenue sources. There is a shared commonality between certain groups or segments, known as a cohort, responsible for a certain amount of revenue.
For example, a retailer or e-commerce marketplace will have many cohorts based on the variety of goods sold. Analyzing revenue on a monthly basis provides a glimpse into what is the best selling item for a given month, which could be heavily influenced by seasonality, while trends showcase more sustained results to prepare order fulfillment, inventory stockage and promotional focuses.
Analyzing these cohorts beyond revenue can also be tremendously helpful in understanding the characteristics and tendencies of your customer base, which in turn, sales and marketing can utilize. Insight from your cohorts can drive new campaign initiatives, decide optimal advertisements and foster upselling opportunities — all necessary to expand your company’s market share and revenue.
We realize there is no one-size-fits-all approach to a Finance Function. Any great practitioner needs the right tools at the right time, and finance is no exception. Our accounting and FP&A tools are designed by finance professionals who have been in your shoes and understand the nuances your role demands.
If you are seeking a solution to automate time-consuming, manual processes and conduct revenue analysis at a deeper level with transaction-level insight and an ongoing synchronization directly with your ERP system, contact us or request a demo. We would be delighted to show you how we can help rapidly transform your Finance Function.
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