Making a revenue bridge chart is an important part of any finance team's process for analyzing and showing financial data. It is a visualization tool that shows how the different parts of a revenue forecast work. This makes it easier to explain the details and factors that affect top-line growth.
A revenue bridge chart is created by taking the difference between two time periods. Usually, these periods are month over month or year over year. Then, they break down the difference into its contributing components. These components can include volume impact, mix impact, price impact, and expenses.
For example, if a company's revenue increases from $100,000 to $110,000, the revenue bridge chart would show the breakdown of how much of that increase is due to an increase in the number of units sold (volume impact), a change in the mix of products sold (mix impact), a change in the average price of the products sold (price impact), and any changes in expenses.
How to make a revenue bridge chart
A revenue bridge chart is a useful tool for businesses and entrepreneurs who want to understand how their revenue changes over time. It depicts how a company's revenue is expected to change as a result of various factors such as sales, marketing, and product development.
The following are the steps to creating a revenue bridge chart:
Step 1: Gather data
The first step in creating a revenue bridge chart is to gather data. You must collect data on your current revenue, expenses, and projected revenue for the next few months or years.
Details such as the number of sales, marketing expenses, and product development costs should be included in this information. Financial statements, sales reports, and marketing budgets can all provide this information.
To ensure accuracy and completeness, data must be gathered from multiple sources.
Step 2: Make a template
Next, make a template in a spreadsheet program such as Excel or Google Sheets. Columns in this template should include current revenue, projected revenue, and the difference between the two.
A section for expenses, such as marketing and product development costs, should also be included in the template. This allows you to compute net revenue for each time period.
Step 3: Enter the data
Once the template has been created, enter the data from step 1 into it. This will include both current and projected revenue, as well as the difference between the two. Include any pertinent notes or explanations for each data point.
Step 4: Create a chart
Once the data has been entered into the template, use it to create a chart that visually represents the revenue bridge.
You can use a stacked column chart or a waterfall chart. The graph should display current revenue, projected revenue, and the difference. This will allow you to identify any trends or patterns in the data quickly.
Step 5: Add details
Add details to the chart, such as the time period shown, where the data came from, and any notes or explanations. This will help you understand what the data means and make it easier to analyze.
Step 6: Inspect and analyze
Examine and analyze the revenue bridge chart. Determine trends, patterns, and opportunities for improvement. Use this information to make strategic business decisions.
For example, if you see that sales are expected to drop over a certain period, you may need to change your marketing or product development strategy to go against this trend.
What can your revenue bridge chart tell you?
Aside from analyzing revenue growth, revenue bridge charts can be used to determine how profitable different products or business units are. A company can determine which makes the most money by breaking down the sales and gross profit for each item or unit.
A revenue bridge chart can assist firms in better understanding their top-line growth and making decisions on how to boost revenue and profitability. It lets businesses look at how volume, mix, and price affect their revenue and helps them figure out which areas to focus on to drive growth.
You can also use revenue bridge charts to determine how a new marketing campaign or a change in pricing will affect your business. Businesses can determine whether their changes worked by comparing the revenue bridge charts before and after the change and making changes based on the results.
Revenue bridge charts can also be used to compare a company's performance to its competitors or benchmarks in its industry and to look at how the company is changing. By looking at the components of revenue growth, companies can see where they are doing better or worse than their competitors.
Building a revenue bridge chart is a difficult endeavor. Still, it is a useful tool for organizations of all sizes. With a bit of data collection and analysis, businesses can make a revenue bridge chart that shows how their top line is growing and how much money they are making.
If a business has the right skills and tools, it can use revenue bridge charts to help it grow and improve its financial performance.