Analysing the headline revenue numbers of a business can tell you whether a business has experienced top-line growth, but it will not tell you what is driving that growth. Revenue growth is driven by an underlying change in price and volume.
Sales mix (i.e. the proportion of each individual product sold) will also influence revenue, but this example focuses on the blend of price and volume (which will incorporate the mix impact).
Between FY15 and FY16 shown above, we can see that revenue has increased (from 75 to 90), volume has increased (from 120 to 135) and average price has increased slightly (from 0.63 to 0.67). In order to quantify the proportion of the revenue increase that is attributable to volume and what proportion is attributable to price, we can use the following formulas:
- (FY16 volume – FY15 volume) * FY15 average price
- (135-120)*0.67 = 9.4
- (FY16 average price – FY15 average price) * FY16 volume
- (0.67-0.63)*120 = 5.6
Therefore, in this example, a revenue increase of 15 was driven by a mixture of volume and price.