Common Size Analysis: Formula, Examples, and What It Can Tell You

Founders often focus on boosting revenue, celebrating higher sales, gross merchandise volume, new customers, and successful funding. 

But they might miss a crucial point: not tracking changes in their costs or where profits are shrinking as the business grows. Without this key information, scaling sustainably is impossible, and growth will eventually stall.

This is exactly where Common Size Analysis becomes essential. It’s a method CFOs and smart business people use to assess financial performance by showing each expense as a percentage of a larger total. 

For example, instead of just seeing a $100,000 ad spend, Common Size Analysis shows that marketing now makes up 22% of revenue, a big jump from 14% last quarter. 

Insights like these, when understood properly, can really change how growth strategies are discussed.

This guide will show you how to use Common Size Analysis on your Profit & Loss statement and balance sheet to find hidden patterns.

 It will also explain how tools like doola Analytics can automate these analyses, saving you from tedious spreadsheet work.

Let’s begin.

What Is Common Size Analysis?

Common size analysis, also referred to as vertical analysis, is a simple way to read financial statements (like a balance sheet or income statement) by turning all the numbers into percentages.

It’s called “common size” because it puts businesses of different sizes on a common scale, so you can compare them easily.

Think of it like this: Instead of saying your business spent $50,000 on marketing, you’d say it was 25% of total revenue. That percentage is easier to compare over time or against other businesses or functions.

Common Size Formula: How to Calculate It

What Each Element Means:

1. Amount of Individual Item

This is the specific line item you’re analyzing in your financial statement.

• Example (Income Statement): Let’s say you’re looking at “Marketing Expenses” which cost you $8,000.

• Example (Balance Sheet): Or maybe you’re looking at “Inventory” which totals $50,000.

Example (Income Statement):

If your total revenue is $100,000 and your marketing spend is $8,000

Going by the formula your common size = (8,000/100,000)×100=8%

You now know 8% of your revenue is going to marketing, which you can compare against benchmarks or previous months.

2. Amount of Base Item

This is the reference total you’re comparing the individual item against.

• For Income Statement items, the base is usually Total Revenue (Sales).

• For Balance Sheet items, the base is often Total Assets.

How doola Makes This Effortless

With most accounting or bookkeeping tools, you’d have to export statements, run formulas, and build spreadsheets to get these insights.

But doola does it for you, automatically.

• Your income statements and balance sheets are converted into common size format in real time.

• No formulas, no manual categorization.

• You get smart flags (like “Marketing >15% of revenue this month”) to help you act before small problems snowball.

doola’s analytics dashboard helps early-stage founders stay investor-ready and insight-rich, even without a finance team.

Key Benefits: Why Common Size Analysis Matters for Business Decisions

Common size analysis breaks down your financial statements into simple, comparable percentages. This makes it easier to understand where your money is going, how your business is performing over time, and how you stack up against competitors.

In this section, we’ll walk through the specific benefits, and how they help you make smarter, faster decisions.

1. Spot Financial Red Flags Early

When you track line items as percentages over time, big shifts stand out immediately.

For example, if operating expenses jump from 30% to 55% of revenue in two years, you know something’s weirdly off, even if revenue went up.

💡 doola’s POV: Most founders get fooled by vanity metrics. “We doubled revenue!” sounds exciting, until you see that costs tripled. Common size analysis shows if you’re growing sustainably or draining profit under the hood. 

2. Make Apples-to-Apples Comparisons

Common size analysis normalizes companies of different sizes. You can directly compare two e-commerce brands.

One earning $1M and another $10M, and wisely allocate their spending, margins, and overhead.

💡 doola’s POV: Without common size analysis, you might admire a competitor’s scale without realizing they’re burning cash. When you express line items as % of revenue, you get clarity on their business model, not just their top line. 

3. Understand Strategic Trade-Offs

Common size analysis reveals how a company prioritizes growth.

Are they spending 25% of revenue on ads? Cutting margins to gain market share?

Common size analysis surfaces the why behind the numbers, not just the what.

💡 doola’s POV: There’s always a story behind a balance sheet. Some founders operate lean. Others go aggressive on CAC (Customer Acquisition Cost) to dominate the category. doola Analytics helps you decode their strategy and reflect on your own, especially if you’re playing the long game.

4. Track Expansion or Shrinkage Clearly

If asset percentages increase year-over-year (like inventory or plant), it often signals expansion or acquisition. A shrinking percentage might flag asset sales or downsizing.

💡 doola’s POV: Whether you’re bootstrapped or venture-backed, timing your moves matters. By watching how assets and liabilities shift in proportion, you can tell whether your business is expanding strategically, or reacting to pressure. It’s decision hygiene, not just reporting.

5. Get Investor-Ready Insights

Investors love clean, comparable data. When your statements already show trends in common size format, it builds trust and shows you understand your numbers, not just your product.

💡 doola’s POV: Investors only back financially disciplined operators. Showing you track common size trends signals maturity. It proves you’re not just pitching vision, you’re running a business with visibility.

Real-Life Common Size Analysis Example

Let’s compare two e-commerce companies:

• Company A (larger): $1,000,000 in annual revenue

• Company B (smaller): $400,000 in annual revenue

At first glance, Company A seems more successful. It’s making 2.5x more revenue. But once we normalize both income statements using common size analysis (i.e., expressing every line item as a % of revenue), a different story emerges.

Side-by-Side Comparison: Absolute vs. Common Size

Key Insights Uncovered from the Analysis

• Efficiency Trumps Size (Sometimes): Company B retains 25% of its revenue as profit,  that’s more than double Company A’s 12%. Despite being smaller, B is operating more leanly and profitably.

• COGS Disparity Uncovered: Company A’s cost of goods is 60% of revenue, while Company B’s is only 45%. That suggests B may have better supplier contracts, lower production costs, or a more optimized product line.

• Spending Behavior: Even though B spends slightly more (as a % of revenue) on ops, its stronger gross margins absorb that easily.

• Investor Insight: If you’re an investor evaluating both, B may offer stronger returns per dollar of revenue. And, if you’re the founder of Company A, this could be a wake-up call to optimize operations, not just grow top-line numbers.

Now, What You Might Miss Without Common Size

You would only observe absolute figures like “$1M > $400K” or “$120K profit > $100K profit.” Consequently, you would entirely overlook crucial insights into efficiency, cost structure, and risk.

Common size analysis, however, allows for a normalized comparison of businesses regardless of their scale, by converting figures into a standard metric such as “profit per $100 revenue.”

How doola Automates This (So You Don’t Need Spreadsheets)

If you’re a busy founder, you don’t want to build this kind of analysis manually in Excel.

doola Analytics automatically generates categorized income statements where every line item can be toggled into % of revenue. That means you can spot inefficiencies, cost spikes, and margin opportunities, without having to calculate anything yourself.

And yes, even if you’re selling in multiple currencies or across platforms like Stripe, Shopify, and Amazon,  doola aggregates that data into a single, clean financial dashboard.

Sign up now!

Types of Common Size Analysis

Understanding how you’re looking at your financial data is just as important as what the data says. Common size analysis can be conducted in two ways, i.e., vertical analysis and horizontal analysis. Let’s explore:

1. Vertical Analysis (Single Period)

This type shows what portion each item makes up of a total in the same time period.

• On the income statement, everything is shown as a % of total revenue.
  Example: If your marketing cost is $20,000 and your total revenue is $100,000 → marketing is 20%.

• On the balance sheet, everything is shown as a % of total assets.
  Example: If you have $30,000 in inventory and $150,000 in total assets → inventory is 20%.

Use this analysis when you want to see how your spending or structure looks right now and where your money is going.

2. Horizontal Analysis (Multiple Periods)

Here, you track how specific line items change across time, also as percentages,  often year-over-year.

• Helps you compare trends in cost structure, growth, or liquidity.

• Tells you whether your financial decisions are compounding or correcting.

Use this when you’re tracking performance improvements or financial shifts over time.

How doola Makes This Effortless

With doola, you don’t need to pull out spreadsheets or calculate these ratios manually. You get:

• Auto-generated reports showing vertical & horizontal analysis

• Clean dashboard showing where your money is going

• Insights across quarters, across accounts 

Common Pitfalls to Avoid in Common Size Analysis

Common size analysis is quite powerful, but if used without nuance, it can lead to misleading conclusions or bad decisions.

Here’s what to watch for:

1. Using the Wrong Base for Comparison

Common size analysis only works if you use the right denominator.

• On the income statement, everything should be a percentage of revenue.

• On the balance sheet, everything should be a percentage of total assets.

Founders sometimes compare gross profit as a % of net income, which skews the insight entirely.

So, always clarify: “% of what?” before drawing conclusions.

2. Comparing Different Base Years or Unmatched Time Frames

If you’re doing horizontal common size analysis (i.e., comparing across years), the time period must match across the data you’re analyzing.

Looking at full-year 2023 revenue vs. only Q1 2024 revenue. That will mislead you into thinking your business shrank, when it hasn’t.

You have to ensure you’re comparing like-for-like timeframes. Either YTD vs. YTD, or full year vs. full year. 

3. Over-Relying on Percentage Changes Without Looking at Absolute Values

Percentages are great for comparison, but they can hide absolute materiality.

For example, let’s say your marketing spend jumps from $1,000 to $2,000. That’s a 100% increase,  but in real terms, it’s only $1,000. Meanwhile, your COGS went up $20,000,  a 10% increase, but far more impactful.

Look at both common size and actual values before making strategy calls.

4. Not Adjusting for One-Offs or Seasonality

A one-time equipment purchase, a holiday spike, or a big refund batch can dramatically distort your common size view. Not adjusting for unusual quarters and then projecting those insights forward.

Make sure you flag and normalize anomalies when using common size analysis for forecasting or budgeting.

Let doola Help You Avoid These Traps

With doola Analytics, you’re not manually crunching spreadsheets and risking human error. Our system:

• Standardizes your financial reporting structure

• Tags anomalies and seasonal patterns

• Generates consistent base metrics for accurate comparison

• Surfaces real and deep insights, not just ratios

Remember, you don’t need to memorize every accounting rule. You just need a system that keeps your data clean and your insights deep.

How doola Analytics Makes Financial Analysis Easy

If you’ve ever juggled six spreadsheets just to answer one basic question, “What’s actually working?”, we’ve a solution for you. 

Most founders spend too much time compiling financial data and not enough time acting on it.

That’s where doola Analytics steps in.

No more guesswork, no more scattered dashboards. Just one clean platform that connects your business and ad data to real-time insights. 

Here’s how it solves the founder’s biggest data headaches:

Stay on Top of Orders (Without Refreshing Tabs All Day)

Whether you’re selling on Shopify, Amazon, or both, doola shows you your order stats live. Track returns, fulfillment trends, and revenue by platform, without digging through reports.

Before doola: Switching between marketplace dashboards

After doola: One screen, all orders, updated in real time

Track Ad Spend & Performance in One Place

No more bouncing between Meta Ads Manager, Google Ads, and TikTok dashboards. doola connects your ad accounts so you can:

• See where your ad dollars are going

• Spot underperforming campaigns

• Double down on what’s converting

Tip: You can even filter results by product or platform to know what’s actually selling because of your ads.

Understand Revenue & Margins With Clarity

You don’t just want to see sales, you also want to know:

• Which products are driving profit?

• What’s eating into margins?

• Are you overspending on acquisition?

doola helps break down every dollar earned and spent so you make decisions with precision, not instinct.

Spot Trends Before They Cost You

With seasonal patterns, restock alerts, and visual trends, doola helps you act before things spiral, like running out of your bestseller mid-launch or letting a slow-moving SKU take up shelf space.

Built for Founders, Not Analysts

You don’t need to know SQL or BI tools. With doola:

• Setup takes minutes, not days

• No spreadsheets needed

• Insights are real-time and actionable

• Your accountant or bookkeeper can access the same dashboard

Over 10,000+ founders already trust doola to turn their numbers into momentum.

Sign up today to get started!

FAQs

What’s the main difference between Common Size and Ratio Analysis?

Common size shows each item as a percentage of a base (like revenue or assets). Ratio analysis compares relationships between two items (like debt-to-equity or gross margin).

Can I use Common Size Analysis for startups?

Yes, it’s especially helpful to track early spending patterns, monitor margins, and stay lean as you grow.

How often should I run a Common Size Analysis?

Quarterly works well for most businesses. Monthly is better if you’re growing fast or managing multiple sales channels.

Is Common Size useful without accurate bookkeeping?

No. You need clean, organized books for meaningful insights. That’s why many founders rely on doola Bookkeeping to make common size reports effortless and accurate.

Related Readings

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🔖 How to Automate Accounting for Dropshipping: A Complete Guide for 2025

🔖 How Much Does Tax Preparation by a CPA Cost? 2025 Pricing Breakdown

🔖 A Guide to Excel Accounting and Bookkeeping