Revenue growth is generally considered a positive and desirable goal for a business, as it indicates an increase in sales and often leads to increased profitability. However, it is essential to note that more than simply growing revenue is required to translate to increased profitability.
Let’s go into PowerBI to determine if revenue growth is profitable.
Your model doesn’t have to be complicated. We have a pretty straightforward model here.
The DAX is also straightforward. Two conditions need to be satisfied before revenue growth is profitable, which includes
Revenue growth is greater than 0
Profit growth is greater than 0
So we need to write dax measures that consider those two factors. The base measures required by this include
Current Year Revenue
Previous Year Revenue
Current Year Profit
Previous Year Profit
Let’s get the ball rolling
Current Year Revenue
2. Previous Year’s Revenue
3. Current Year Profit
4. Previous Year’s Profit
5. Revenue Growth
6. Profit Growth
Now that we have gotten our base measures out of the way. We need to calculate if revenue growth is profitable or not. Let’s focus on the customers.
Non-Profitable Revenue Growth
The DAX above calculates the Profit Growth for customers who spent more than the previous year, but the profit gotten from that customer is less than the last year’s profit. These customers are the point of interest.
2. Profitable Revenue Growth
Here, it calculates the Profit Growth for customers who spent more than the previous year, but the profit gotten from that customer is more than the last year’s profit.
Always best to view this using a scatter plot.
You can also go regionally, i.e. where are we making more money, but profit isn’t increasing with revenue—just a few tweaks to the DAX measure.
This works similarly.
For revenue growth to be profitable, a business must also be able to control its costs and expenses. If a company can increase its revenue while effectively managing its costs, it will likely increase profitability. However, if a company’s expenses increase faster than its revenue, it may struggle to achieve profitability even if its income grows.
Other factors can impact the relationship between revenue growth and profitability. For example, a company may need to invest in marketing or other initiatives to drive revenue growth, and these investments may temporarily reduce profitability. Additionally, a company may experience market changes or a competitive environment that affects its ability to generate profits.
Overall, revenue growth can be essential to profitability, but it is not the only factor to consider. A company must also focus on effectively managing its expenses and adapting to market changes to maximize profitability.