Driving by the rear-view mirror: why revenue describes the past

The rear-view mirror is the most honest instrument on board.
It makes no forecasts and asks for no interpretation: it shows what has already passed, nothing more. Every sign passed, every car left behind. Whoever looks into it feels in control, because what they see is sharp and nobody can dispute it.

The problem comes when you try to use it to look ahead. And although it may sound like an absurd scenario, this is exactly what happens to companies that run their business by watching revenue. It works, until you reach the first bend.

Revenue is the company’s rear-view mirror. It is the most closely watched number in any board meeting and, in our experience, the least useful when a decision has to be made.

Revenue is the past

Revenue is not born in the year you record it. It might seem so, of course, but it is not.

It stems from pricing, product, communication and organisational choices made months (sometimes even years) earlier, and reaches the accounts once the consequences have already played out. In the jargon it is called a lagging indicator: it measures the effect, and by then the cause is long gone. It is a bit like a receipt: it can tell you what you had at your last meal, but it cannot predict what you will eat tomorrow.

That is why, when revenue falls, the cause occurred long ago, and it almost never has anything to do with the year in which the number drops. For the same reason, when it rises, the leadership applauds: it is applauding decisions taken a year ago, perhaps by their predecessors, and the number says nothing about today’s. Every revenue record is an ode to the past.

The KPIs that move before revenue

Revenue is not a figure in its own right. It is the result of a formula: how many people know the brand, how many choose it, how many come back, how much they are willing to pay. Each of these components moves before the total, and that is where the leading indicators lie.

Picture a company where online searches for the brand have been falling for two years, long-standing clients order a little less each time and every sale needs a discount to close. Revenue, meanwhile, is identical to last year’s. The leadership sleeps soundly, while the formula is already eroding from within.

In 2020 Les Binet presented to the IPA, the UK association of communications agencies, share of search: a brand’s share of Google searches relative to those of all the brands in its category. Tested in automotive, energy and mobile telephony, it correlated with market share and, in cars, could anticipate it by up to a year (IPA, EffWorks Global 2020).

In many companies these numbers already exist, and nobody looks at them with the attention they give to revenue.

Before the numbers, the brand

There is one thing no dashboard measures on its own, and that is the brand. The right indicator, without a reading of the brand that produced it, becomes a number nobody can interpret: searches fall, and nobody can say who has touched the brand in recent years, or how consistently.

That is why, when we walk into a company, the first thing we do is read the brand: how it has taken shape over the years, who has managed it, and how consistently. The explanation for slowing revenue is often found there.

Revenue remains the most precise way of knowing where you have come from, so you should keep checking it. But at driving school they teach you to look in the rear-view mirror for a second, then return your eyes to the road.

Unfortunately, in board meetings people stare at it the whole time.