Most companies of any larger size use Key Performance Indicators (KPIs) to understand how the business is developing. KPI measures look at Revenues, Costs, Balance Sheet items, Cashflows, etc.

But how do you effectively track these measures over a typical 5-year business cycle? So, let’s look at five annual series of monthly revenue streams as illustrated below.

The graph suggests that the company has monthly sales of around five million Euro. The VP of Marketing & Sales has several questions: Are sales developing positively over time? Is there any seasonality in the sales numbers? Is the company selling according to budget, and how soon into the budget year will I be able to take corrective actions? What about the effect of marketing activities on sales?

There are no clear answers to these critical questions looking at only monthly sales numbers. We need to transform the numbers further.

Accumulating Monthly Sales

Many companies track sales by accumulating monthly sales until ending the year and comparing the full-year result with the budget. Alternatively, comparing accumulated monthly sales to last year’s accumulated sales. Let’s visualize this with our numbers.

The year five sales are accumulated monthly and are compared to the previous year’s sales (red line). As we add more months, the accumulated value will gradually become more accurate in forecasting the year’s ending sales. Year 5 sales follow previous year’s sales closely, regaining in July but ending the year at 58 million Euro, slightly behind last year’s sales.

However, it is hard to derive any trend or direction of where sales are heading. We will need to make another transformation of the data to see a trend.

The Rolling 12 Months Tracking Method

Now the Rolling 12 months tracking method proves its power. Let’s again accumulate 12 months of sales, but this time starting from the first month five years ago. We record the sales, drop the first month and add sales for month 13, again with 12 consecutive months in the time window. Record the sales, and repeat the procedure by dropping the first month and adding month 14. In other words, we are accumulating sales in a rolling time window of 12 consecutive months. The results look like this:

Any given point in the graph represents a full year’s accumulated sales, which matters because you can instantly derive current sales compared to the end-of-year budget and see if any trend exists and its direction. The company is regaining sales annually after the initial sharp drop in the 5-year business cycle.
Let’s return to the questions of the VP of Marketing and try to answer them from the R12 plot.

• Are sales developing positively over time? Yes, sales trended positively over the last couple of years and peaked five months ago.
• Is there any seasonality in the sales numbers? No. Seasonality is not visible, which is an actionable insight for the marketing strategy.
• Is the company selling according to budget, and how soon into the budget year will I be able to take corrective actions? Assuming a full-year sales budget of 60 million Euro, the company ended 2 million Euro short of the target. However, already the decline was visible two months before year-end, so the company launched a promotional campaign.
• What about the effect of marketing activities on sales? Market Research suggests a flat growth of the global market. The VP believes that the aggressive spending on marketing a few years ago is the driving factor supported by the R12 trend.

The R12 method further permits the VP to calculate the rolling 12-month growth, compare it to market growth, and calculate the KPI of year-on-year growth.

To find out what else Rolling 12 KPI tracking of various KPIs can do for you, please visit Forecastbee to learn more.