|All Industries, Financial Model, General Excel Financial Models|
|Excel, Financial Model, Financial Modeling, Pricing, Variance Analysis, Waterfall|
This set of tools, methods, and techniques will help you calculate and depict variances. A special focus is made on determining the price, volume, and mix effects.
If your company sells more than one product, you will at some point start wondering which products and to what extent were driving the change in total revenue or profit. This can be the change between the current and prior year, or between budget and actual.
As such, the following types of analysis will come in handy:
1. See the changes at a glance using professionally designed magazine-quality charts and dashboards.
2. Compare total revenues by product and see which of them affected the revenue (profit) change to the biggest extent (both positively and negatively)
3. Price elasticity – estimate how reactive the market is to price change. Has the change in prices led to a change in volumes? Has the price increase brought in higher revenues or were they swallowed by reduced volumes? Have you been better off reducing prices this year in terms of the total change in profits?
4. Split the revenue change into three components: price effect, mix effect, and volume effect. Have we done a good job pushing the volumes? Have we given enough effort into selling more expensive (profitable) products? Have we made a trade-off between volumes and prices?
The publication also explains in detail how to create a horizontal waterfall chart. This is a smart and efficient type of chart visualizing variances between the numbers. It will surely make your presentations look professional and your reports – impress your clients, managers, and colleagues. This chart is compatible with all versions of Excel.