Especially in high-growth companies, executives tend to spend a lot of time budgeting and looking at expense variances- people are inclined to focus on expenses because you can control them. However, when you’re halfway through the year your revenue is always the most volatile number, you could be off by 50%, because revenue is so choppy. As for expenses, a good rule of thumb is to consider anything over 10% as unusually volatile. While you can’t fully control revenue, a lot of insight can be derived from figuring out what’s causing the revenue variance. The key with budget variance analysis is to dig into your revenue and why you’re off by so much to improve business operations.
Ideally when you’re budgeting revenue you aren’t just picking a number based on last year’s revenue. It’s important to be budgeting revenue based on a key driver.
For example, a subscription type service with a flat monthly fee, should budget revenue month by month, according to customer acquisition rates and your net new monthly recurring revenue (MRR). Then adding in any anticipated new clients and the additional income each month in a sort of waterfall effect.