How do you prepare a revenue variance analysis report?

1 Step 1: Gather data

The first step is to gather the data you need to calculate the revenue variance. You will need the actual revenue and the budgeted revenue for the period you want to analyze, such as a month, a quarter, or a year. You will also need to break down the revenue by different categories, such as products, services, regions, channels, or customers, depending on your business model and goals. You can use accounting software, sales reports, invoices, or other sources to collect the data.

2 Step 2: Calculate total revenue variance

The second step is to calculate the total revenue variance, which is the difference between the actual revenue and the budgeted revenue. You can use this formula:

Total revenue variance = Actual revenue - Budgeted revenue

The total revenue variance can be positive or negative, indicating whether the business has exceeded or fallen short of its revenue target. For example, if the actual revenue is $120,000 and the budgeted revenue is $100,000, the total revenue variance is $20,000, which is positive.

3 Step 3: Calculate revenue mix variance

The third step is to calculate the revenue mix variance, which is the difference between the actual and budgeted revenue due to changes in the proportion of revenue from different categories. For example, if the business sells two products, A and B, and the budgeted revenue mix is 60% from A and 40% from B, but the actual revenue mix is 50% from A and 50% from B, there is a revenue mix variance. You can use this formula:

Revenue mix variance = (Actual revenue mix - Budgeted revenue mix) x Budgeted revenue

The revenue mix variance can be positive or negative, indicating whether the changes in the revenue mix have increased or decreased the total revenue. For example, if the budgeted revenue is $100,000 and the revenue mix variance is -$5,000, it means that the changes in the revenue mix have reduced the total revenue by $5,000.

4 Step 4: Calculate revenue volume variance

The fourth step is to calculate the revenue volume variance, which is the difference between the actual and budgeted revenue due to changes in the quantity of sales. For example, if the business sells 10,000 units of product A and 5,000 units of product B, and the budgeted sales volume is 8,000 units of product A and 6,000 units of product B, there is a revenue volume variance. You can use this formula:

Revenue volume variance = (Actual sales volume - Budgeted sales volume) x Budgeted unit price

The revenue volume variance can be positive or negative, indicating whether the changes in the sales volume have increased or decreased the total revenue. For example, if the budgeted unit price of product A is $10 and the revenue volume variance is $20,000, it means that the changes in the sales volume have increased the total revenue by $20,000.

5 Step 5: Calculate revenue price variance

The fifth step is to calculate the revenue price variance, which is the difference between the actual and budgeted revenue due to changes in the unit price of sales. For example, if the business sells 10,000 units of product A at $11 and 5,000 units of product B at $9, and the budgeted unit price is $10 for both products, there is a revenue price variance. You can use this formula:

Revenue price variance = (Actual unit price - Budgeted unit price) x Actual sales volume

The revenue price variance can be positive or negative, indicating whether the changes in the unit price have increased or decreased the total revenue. For example, if the actual sales volume of product A is 10,000 and the revenue price variance is $10,000, it means that the changes in the unit price have increased the total revenue by $10,000.

6 Step 6: Prepare the report

The final step is to prepare the revenue variance analysis report, which summarizes the results of the calculations and explains the causes and implications of the variances. You can use a table, a chart, or a narrative format to present the data, depending on your audience and purpose. You should also include recommendations for actions or adjustments based on the analysis, such as increasing or decreasing prices, promoting or discontinuing products, expanding or reducing markets, or improving or changing strategies.