Learning how to calculate growth in sales is one of the most important things you can do as a business leader. After all, growth is something every sales company wants to pursue at all times. It ensures your company can continue to thrive in competitive times, and it’s how you know you’re making the right steps in developing your business.
So, how do you calculate your sales growth formula?
Sales growth is a term used to refer to increase in the percentage of sales made within a specific time period. It’s a comparative measurement, allowing you to track the progress of your business from one month or year to the next.
The most common sales growth formula looks like this:
Growth = (Sales2 – Sales1) / Sales1 * 100
In this sales growth formula, “Sales2” refers to the net sales you’ve achieved in the current period, while “Sales1” refers to the net sales you’ve achieved in the prior period. For instance, imagine in the first quarter of the year you achieved a net sales number of $200,000, while in the second quarter, you achieved a net sales total of $250,000.
The math would work out as follows:
Growth = (250,000 – 200,000) / 200,000 * 100 = 25
According to this calculation, your growth rate would be 25% between both quarters.
One point to keep in mind when you’re calculating sales growth, is there are different ways to examine your progress. Most of the time, the different methods you use will vary depending on the periods you’re looking at. For instance, you can consider:
Whenever you’re calculating your sales growth formula, keep in mind you should also leave room for context. Making notes in your sales calculations when major changes happen can help you to understand progress from one month or year to the next. For instance, if you’ve just launched a new product, you’re likely to have higher sales when the product is still new than you would in general.
Growth can be affected by a lot of different things in your business. The economy and surrounding factors can influence how successful a business is from one year to another. This could mean that even if you don’t see significant growth one year, your business isn’t necessarily unsuccessful.
However, the complexity of calculating sales growth doesn’t make it any less important. Calculating and analyzing your sales growth regularly will help you track:
Above anything else, learning how to calculate growth rate will help you to keep a closer eye on what’s going on within your business landscape, and whether you’re making the right steps towards business success.
One of the challenges of measuring growth rate is determining what a good growth rate should look like. There’s no one-size-fits-all answer to this question. For the most part, a good growth rate is essentially just whatever your business owners and stakeholders consider it to be.
A good growth rate can also vary from year to year depending on the situation. For instance, during the pandemic, many companies had to accept a lower than usual growth rate, simply because the economy was struggling.
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