Why it is important to break out price from volume during revenue modelling.
Nsikak Essien - M.
Finance Professional at Holcim | Holder of MSc in Economics, Accounting, and Supply Chain with expertise in Finance & Risk. Designed and implemented transformation roadmaps, leading to successful finance transformation
Breaking out price from volume during revenue modelling is important for several reasons. Firstly, it allows for a more accurate understanding of the factors driving revenue. By separating price and volume, it becomes possible to analyze the impact of changes in pricing strategies and sales volume on overall revenue (Foster et al., 2005). This information is crucial for making informed decisions about pricing, marketing, and sales strategies.
Secondly, breaking out price from volume helps in identifying the drivers of revenue growth or decline. By analyzing the changes in price and volume separately, it becomes possible to determine whether changes in revenue are primarily driven by changes in price or changes in sales volume. This information can be used to identify areas of improvement and develop targeted strategies to increase revenue (Remeňová et al., 2020).
Furthermore, breaking out price from volume allows for a more accurate assessment of the effectiveness of pricing strategies. By analyzing the relationship between price and volume, it becomes possible to determine the price elasticity of demand and understand how changes in price impact sales volume. This information can be used to optimize pricing strategies and maximize revenue (Li et al., 2021).
Additionally, breaking out price from volume is important for understanding the impact of external factors on revenue. For example, in the context of dynamic road pricing, separating price from volume allows for the determination of optimal toll prices that maximize revenue while considering constraints on average speed and traffic volume (Hassan et al., 2013). Similarly, in the context of carbon emissions and low-carbon supply chains, separating price from volume helps in analyzing the impact of government subsidies on sales volume and revenue (Li et al., 2021).
In conclusion, breaking out price from volume during revenue modeling is important for gaining a comprehensive understanding of the factors driving revenue, identifying areas of improvement, optimizing pricing strategies, and analyzing the impact of external factors on revenue. By separating price and volume, it becomes possible to make more informed decisions and develop targeted strategies to increase revenue and maximize profitability.
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References:
Foster, L., Haltiwanger, J., & Syverson, C. (2005). Reallocation, firm turnover, and efficiency: selection on productivity or profitability?.. https://doi.org/10.3386/w11555
Hassan, A., Abdelghany, K., & Semple, J. (2013). Dynamic road pricing for revenue maximization. Transportation Research Record Journal of the Transportation Research Board, 2345(1), 100-108. https://doi.org/10.3141/2345-13
Li, B., Geng, Y., Xia, X., & Qiao, D. (2021). The impact of government subsidies on the low-carbon supply chain based on carbon emission reduction level. International Journal of Environmental Research and Public Health, 18(14), 7603. https://doi.org/10.3390/ijerph18147603
Remeňová, K., Kintler, J., & Jankelová, N. (2020). The general concept of the revenue model for sustainability growth. Sustainability, 12(16), 6635. https://doi.org/10.3390/su12166635