ECON First believes that business success centers around knowing the economic and demographic characteristics of each unique primary market area. While business experience, insights and intuition are important, they are substantially advanced by hard data.
ECON First recommends that businesses carefully track their monthly sales as a quick indicator of the state of demand in their primary market area. The bottom line is a simple graph.
Harold’s local trucking delivery service was unable to get a solid fix on the direction of its sales.
After obtaining 10 years of monthly sales data from Harold, ECON First rapidly provided a straight forward method for the effective tracking of sales.
First, Harold’s monthly sales data was converted into both a 12 month moving average and a three month moving average. This adjusts for seasonality and smooths out the noise that naturally occurs in monthly sales.
Second, a year over year percent change in both the 12 month and 3 month moving averages were calculated. The graph of the percent changes is below.
When the 3 month moving averagepercent change exceeds the 12 month percent change, it signals a coming rise in the 12 month percent change. Conversely, when the 3 month percent change falls below the 12 month percent change it signals a coming drop in the 12 month percent change.
A simple parallel is a baseball player’s batting average. If a player with a season’s batting average of 300 hits 450 in tonight’s game, their season average will then rise. Conversely, if the same player hits 100 in tonight’s game their season average will fall.
Using the simple line graph, Harold can quickly gain perspective on the 12 month sales track by examining the 3 month track. For example, the 3 month percent peaked in October of 2015 and hit a trough in July of 2016. This trend would allow Harold to anticipate the peak in 12 month annual revenue growth that occurred in March of 2016.
Currently (May of 2017), the 3 month percent indicates that the 12 month growth rate in annual sales (around 13%) should remain stable or even increase for a stretch.
ECON First specializes in providing the hard data that allows business owners to make more informed decisions regarding start-ups. expansion, marketing channels, and pricing strategies. It is inappropriate to apply summary measures taken from nation or state level data and assume they apply to specific businesses and primary market areas. A more comprehensive analysis is required for business success.
Let ECON First help you to better evaluate the near term trend for your sales.
Dr. John E. Stapleford