Revenue vs. Commission growth – Getting the message across [BYOD]

Posted on February 17th, 2015 in Analytics , Charts and Graphs - 13 comments

Last week, I asked my email newsletter readers to submit “one data analysis problem you are struggling with”. We called it BYOD – Bring your own data. More than 100 people have emailed various interesting (and often very difficult) problems. This week (between 16th of February to 20th of February), let’s take a look at some of these problems and solve them.

This problem is sent by Fiona. 

Situation: Our commissions are growing way faster than revenues

Let’s say you are looking revenues & sales commissions of your company for last few years. The data looks like this:

revenue-growth-vs-commission-growth-data

And you want to highlight the fact that commissions are growing faster than revenues.

So you plot YoY growth rates for revenues & commissions.

Problem: The chart of YoY growth rates is not convincing

Take a look at the chart. It doesn’t convey the message that we want. At best it says “revenue growth is less than commission growth”

revenue-growth-vs-commission-growth-problem

How to convey the message “Commission growth is a problem for us”?

Option 1. Use indexed charts

When comparing 2 sets of values (that are in different order of magnitudes) over time, we can use indexed charts. They can tell the story of how the values have changed over time clearly.

Here is the indexed chart for our data:

revenue-commission-growth-indexed-chart

How to create this chart?

calculating-indexed-valuesSimple. Just follow below steps.

  1. Calculate index values. Assume first year value for each series as 100 (so revenues = 100, commissions=100 in year 2010)
  2. For next year, calculate the value as this year value / first year value
  3. Plot these indexed values on a line chart
  4. Adjust the line chart axis minimum to 1 (or 100%) if all values are >1
  5. You are done

Option 2. Visualize ‘for every % in revenue growth, commission grows by…”

We can calculate what is the change in commission growth rate for every % growth in revenues & plot this. This will depict the situation in a powerful & dramatic fashion, like this:

pct-change-in-commission-for-every-pct-change-in-revenues

How to create this chart?

calculating-values-pct-change-revenues-commission-growthEven simpler. Just do these steps:

  1. Calculate % values by dividing YoY commission growth with YoY revenue growth
  2. Plot this as a column chart
  3. Draw a line at 100%
  4. Add a text box at this line and write “Ideal” on it.
  5. You are done.

Download Revenue vs. Commission growth charts

Click here to download the example workbook. Examine the formulas & chart settings to learn better.

How would you present this information?

My favorite approach is to use indexed charts. They are designed for this exact purpose.

What about you? How would you visualize this kind of information? What charting techniques will you use to get your message across? Please share your inputs in the comments section.

Written by Chandoo
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13 Responses to “Revenue vs. Commission growth – Getting the message across [BYOD]”

  1. Green says:

    The first chart highlights the problem, which is: the difference between revenue and commission growth and the degree with which they differ, much more effectively.

    True, it does show that revenue growth is less than commission which in turn shows that commission growth is a problem, the need for index numbers and % values is limited because the first chart sufficiently shows the issue.

    Regards,

  2. Chris Macro says:

    This is an amazing example of how a simple set of data can show completely different stories to an audience. Graphics are meant to be processed by the audience quickly and we as data analysts need to be able to portray the correct version of the story (with very little "audience-analysis" required) while creating our charts. Well done Chandoo!

  3. Bob says:

    I think you have to be very careful when comparing streams of data with very different bases (e.g., 240 and 19.2). High percentages come easily to low bases - and can be misleading. If I were looking at this data I would look at the overall paid commission rates each year: 8%, 9.3%, 10.8%, 11.8% and 12.3%. If you wanted to highlight the increases you could plot the year over year changes: 1.3%, 1.5%, 1.0% and 0.5%. I would also look under the bare percentages to examine causes: a progressive plan, a shift in mix to more commission rich sales (e.g., service verus product), a shift in mix to more new business (with higher commissions) versus lower commmissioned renewals, and the like. It could well be that these numbers are exactly what the plan was designed to achieve. I wouldn't sound the alarm without more facts. Using a waterfall to walk through the underlying factors that drive the 5 year change from 8% to 12.3% would be much more prescriptive than plotting comparative YOY percentages.

  4. Filder says:

    I'd agree to this statement. Also I think the bar chart showing commission growth is misleading. While I understand the math behind, it easily could be interpreted as 1% of revenue growth leads to 3 times higher commissions (316% for 2011). I think a better way to show this would be to base the commission growth at same base as revenue (revenue 2010).
    But it wouldn't be as dramatic...

    Nether the less, I like the post very much as it teased me to think about how to use such easy data transformations to create meaningful charts. Keep Going!!!

  5. Rudra says:

    Hi,
    How is commision calcualted fro year 2011 to 2014 ? For Year 2010, it is 8%. Could you please explain?

  6. Ericson says:

    Chandoo,

    I think you have some haters on here. I think this is an excellent teaching example. I do have one question. Couldn't you use the percent of Commission/Revenue to illustrate the relationship change. Just a thought.

    • Hui... says:

      @Ericson
      How do you arrive at the "haters" comment?
      There is nothing wrong or negative about any of these comments
      They are all constructive or inquisitive

    • Chandoo says:

      Hi Eric... I don't think we have haters. Just different opinions, techniques and thinking about how this should be analyzed & visualized. It is precisely this kind of discussion I want to see in our comments. Every time I see a different point of view, I learn a little 🙂

      • Ericson says:

        My apologies. It was not meant as a insulting remark. I meant it in more of a fun way. Like monday morning quarterback for example. I like the different points of view as well. Intriguing how we all have our different methods of doing things. I forget sometimes how humour doesn't come across the way it should, so as a revision, I think you have a bunch of differing views. 🙂 I greatly enjoy the website, topics, and people.

    • Fiona says:

      Hi Eric,
      Commission/Revenue is commission cost of sales and a whole different story. Here the purpose is to demonstrate growth relationship between revenue and commission and if current model is affordable.

      • Ericson says:

        Hi Fiona,

        I agree with your statement, but the Comm/Reven would indicate equal growth. If the number grows, then we know that Commission is growing faster than Revenue. That is IF Revenue is not <0.

      • Bob says:

        Hi Fiona,
        The data do show that the commission plan is getting more expensive each year and this can be highlighted either using commission/revenue or comparative growth trends. The data alone provide no insight as to the affordability or effectiveness of the plan.

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