Last week I was in an app mastermind group discussing how revenue spikes in certain months and shrinks in other months of the year. For some businesses, holidays are the busy season and revenue increases. For other businesses (like travel), summer drives the most revenue.
With revenues going up and down month-by-month, how do you determine if you are growing or shrinking revenues over time? As the CEO of my past software business, I used a method called “Twelve Month Trailing Graphs” to clearly show whether my business was growing or shrinking. It removes the seasonality component. By graphing revenue this way, you simply look at the graph. If the graph is increasing (sloping upwards), you are growing revenue. If it is decreasing (sloping downwards), you are shrinking revenue.
How to Setup a 12 Month Trailing Graph
To work with a 12 month trailing graph, you must have at least 13 months of actual revenue and it really becomes more meaningful once you have 2 years of revenue. So the first point on the graph is a sum of revenue for months 1-12, the second point is revenue for months 2-13, and so on. So it is a rolling sum of revenue that looks back 12 months.
Sometimes it is easier to understand by watching a quick video, so here you go:
Here is the spreadsheet I used in the example: http://www.aMemoryJog.com/12MonthTrailingGraphs.xlsx
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