T12s

T12 (Trailing 12 Month) graphs are a series of points where for each point (for a specific month) the value is the sum of the data for that month and the preceding 11 months.  Therefore for July 06, the value would be the sum of all the values for August 05 through July 06 inclusive; for August 06 the sum of values of September 05 through August 06 inclusive.

So why T12s?  The main sales factors for most companies include some level of seasonality and hence if graphing Turnover, say, it might be natural to expect a dip at some point in the year, for example during the summer holiday season.   The problem when looking at such graphs is whether the dip this year is better or worse than the previous year’s dip, is the subsequent rise better or worse?   T12s overcome these interpretive issues as they remove seasonality from the data points because each data point includes a full year.  Therefore for Turnover, up is good, down is bad – no interpretation.

Additionally, understanding trends is very important – when there are ups and downs due to seasonality spotting a trend is very difficult.  With T12s the trend line (up, level, down) is immediately apparent.

Hence T12 graphs provide a quick and totally unambiguous picture of company performance.  The usual four parameters to graph are overall Turnover, Gross Profit, Turnover and Net Profit.  Turnover is graphed in absolute values, whereas it is recommended that the others are graphed in percentages.  This is because margins may be declining, whilst overall profit is increasing – a classic graph of absolute profit would hide that margin decrease which is an important issue.   Overhead is also shown with the scale inverted – this is so that on all four graphs Up is good and Down is ‘bad’ – we want to decrease Overheads as a percentage and hence reverse the scale so that a Decrease is in fact Up.

Clearly, the T12 methodology can be used for any parameter and not just the standard four of Turnover, Gross Profit, Overheads and Net Profit.  For example, one can create T12s for each major product line, which would show which products are doing well and which might be weakening, even though overall company Turnover may be increasing.  Additionally, if a company has set itself Key Performance Indicators (KPIs) to monitor its progress in respect to Strategic Objectives, then T12s can be used to follow the trends in respect to each of these, if they are quantifiable and measured on a regular basis. (If they are not measurable the KPI probably needs reconsidering!)

{What to do if you don’t have 12 months data?  You could do weekly after 3 months.  Or simply plot in the old fashioned method of the value for each month and then as soon as you have enough data start doing T12s.  Or do T3s, T6s, etc until T12s are available.}

File Downloads

Three files are included:

T12 explanation – V2 – this includes the explanation above and also explains how to use the template and example spreadsheets

T12 – Template – empty – V1 which will allow you to create T12 graphs with minimal effort

T12 – Template – example data – V1 with some example T12 data included.

%d bloggers like this: