The situation
A food producer reports April revenue of US$1,240K. Against budget it is 4.6% short. Against April of last year it is 12.1% down, and the management meeting opens with the word decline.
Five comparisons, five readings
Nothing in the table is wrong. Each comparison answers a different question, and only some of them are worth management’s time.
Last April had one more selling week. Per week, sales are up 9.9%. The second quarter of last year is a poor base too: the company had run out of stock in March, and customers placed a month of accumulated orders in April. The last quarter without that distortion was two years ago.
| Compared with | Base | Variance | What it tells management |
|---|---|---|---|
| April budget | $1,300K | −4.6% | The plan was missed. |
| April last year | $1,410K | −12.1% | Looks alarming, but last April had five selling weeks and this one had four. |
| April last year, per week | $282K vs. $310K | +9.9% | On equal weeks, the business is growing. |
| Average month, Q2 two years ago | $1,180K | +5.1% | Against the last normal quarter, before stockouts distorted orders, growth is modest. |
| Best month of last year | $1,520K | −18.4% | The distance to what the business has already shown it can do. |
Other bases that earn their place
- The best month of last year, as a measure of the gap to proven potential.
- A month when a key raw material traded at the same price as today, to separate what the market did to margin from what the company did.
- A period with the same promotional calendar, when promotions drive volume.
Two rules that keep it honest
Flexible comparison is not permission to pick the flattering base. Budget and prior year stay in every review, so the thread is never lost. Any additional base comes with one sentence saying why it was chosen.
And the comparison must be made on equal terms: per week or per working day when the calendar differs, and with new or discontinued products shown separately when the base is far back.
The management questionWhich comparison would actually change what we decide?