You can perform a simple math equation to calculate the percentage that your company's revenue decreases each year compared to previous years. Calculating this revenue percentage change shines a spotlight on your company's comprehensive profit-and-loss picture instead of focusing on individual products or services sold. This calculation can help your business identify weaknesses, analyze the financial improvement that's needed, adjust for any deficiencies and make projections for your company's future health.
Calculating the Revenue Drop Percentage
For a consecutive two-year period, subtract the later year's revenue from the earlier year's revenue. For example, if your total revenue in 2019 was $100,000 and your total revenue in 2018 was $85,000, subtract $85,000 from $100,000 for a difference of $15,000.
Divide this difference in revenue by the later year's revenue. $15,000 divided by $85,000 equals 0.176. Multiply the result by 100 to arrive at the percentage. In this example, your revenue dropped by almost 18 percent (17.6 actual percent) in 2019 from 2018's revenues.
Trend Analysis of Revenue Percentage Change
If you own a business, trend analysis could be a helpful tool that lets you monitor your company's financial health over time. Trend analysis is a percentage-based evaluation of how your company is performing from year to year. When you calculate the percentage of revenue increases or decreases from year to year and plot the results on a horizontal-line graph, you can easily see the spikes that arise from the baseline which represent revenue increases. When the spikes plummet closer to the baseline, you'll see the decreases in revenue.
What Is a Benefit of Revenue Trend Analysis?
When you scrutinize the data from your trend-analysis graphs, you'll be better able to determine the reasons for the fluctuations you see. If your overall sales continue to increase from year to year, the up-and-down spikes within each year's results may be just a natural result of the ebb and flow of business. You may be able to chalk up one year's revenue decrease to an atypically slow business year or a competitor entering your market. If, however, you begin to see consistent revenue decreases, you can more quickly and proactively tweak your business plan to improve your profit margins.
What Is a Drawback of Revenue Trend Analysis?
Total revenues don't paint the entire picture of a company's financial status. Revenues are offset by business expenses, depreciation and the overall economy, which aren't factored into a calculation that solely measures the revenue drop percentage.
Read More: Accrued Revenue vs. Unearned Revenue
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.