The business cycle is one of the key components of ITR Economics’ unique methodology, as it offers a clear view into how your industry is performing. With insight into your industry’s future, you can effectively plan a full cycle ahead for your company and make a positive impact. Our Trends 10 graphic provides an overview for the major segments of the economy, but how do you determine where your company fits into that picture?
Not only does ITR Economics forecast major industries in the economy, but we can also forecast the future for your company! Just as the industries represented in our Trends 10 graphic can be thought of as railcars in the economic train, so can individual businesses, including yours. With our proprietary methodology, ITR Economics can forecast future performance for an industry or company with a great deal of accuracy, and we also like to teach our clients and community how to get started. So, how do you begin? By learning how to calculate your Rates-of-Change.
How to Calculate Rates-of-Change
Rates-of-Change are a fundamental component to our methodology, as they are a reliable metric that can help you build your business strategy for years to come.
Of course, we are here to help you forecast your business performance, but it is also easy to get started on your own! Here is a convenient, step-by-step guide to help get you started calculating your company’s rates-of-change!
As you watched the video tutorial linked above, you might have noticed different metrics related to your rates-of-change, such as 3MMT, 12MMT, 3/12, 12/12, etc. What do all these mean?
- 3MMT: Stands for three-month moving total. To calculate the 3MMT, you total the most recent three consecutive months of data. When a new month closes, you drop the first month from the total and add the new month. By adding the latest month and dropping the first month, you have a rolling total of quarterly data.
- 12MMT: Stands for 12-month moving total. The 12MMT is conceptually similar to the 3MMT, but you total 12 consecutive months of data instead of just the three. This gives you a rolling total of annual data.
- 3/12 rate-of-change: The 3/12 rate-of-change equation is used to calculate the dataset’s quarterly growth rate.
- 12/12 rate-of-change: The 12/12 rate-of-change equation is used to calculate the dataset’s annual growth rate.
To learn even more about calculating your rates-of-change, download our helpful one sheet.
[ Further Reading: Staying Profitable Through the 2020s ]
Why Calculate Rates-of-Change?
By taking any dataset for your company performance and calculating its rate-of-change, you can successfully determine which phase of the business cycle your company is in and get a glimpse into which phase could be coming next. This allows you to effectively prepare for what's coming.
Calculating the 12/12 rate-of-change for your data is also useful in that it helps you identify your company’s relationship to many of the leading indicators in ITR’s database.
With a clear understanding of the business cycle, the importance of planning a business cycle ahead, and the benefits of calculating the rates-of-change for your company’s datasets, you are now equipped with the key tools for building a strong business strategy for 2023 and beyond.
