Growth. It’s the magic word when it comes to business.
Growth is what investors look for when assessing the viability of an investment. It’s what founders strive for when trying to build a sellable business. It’s what employees work tirelessly towards to highlight their skills and competence.
Why Measure Growth?
There is no surprise that growth is seen as one of, if not the, most important things in a business setting. But it is difficult to improve on something that you do not measure.
So, how do you expect to grow your sales if you never measure them?
Collecting data on your sales allows you to take an analytical look at external market viability as well as internal sales processes. In turn, knowing your sales data will facilitate informed decision making, giving you a much greater chance of success.
Measuring growth is even more crucial when the success of your business is of paramount importance, such as when you are looking for investors or potentially looking to sell.
When assessing sales growth, you must start by collecting the right data at the right time. The more quality data you collect, the better the picture you paint of your current circumstances.
Revenue is the primary figure that is collected when assessing the sales growth rate. Comparing revenue from one period to another will give you a clear understanding of how sales are performing.
Deciding at which point revenue is included is also a crucial factor. For example, different businesses will count revenue as won at different points, such as when the:
- Sale is agreed
- Contract is signed
- Work commences
- Invoice is sent
- Payment is received
Which works for you will depend on individual factors. However, counting revenue at the deal agreed or contract signed stage will give a much clearer picture of sales activity success at any given time.
Data should be collected as often as possible to give a detailed insight into growth. Again, the viability of this will depend on individual circumstances. The more granular you can get with sales data, the easier it will be to compare various periods and drill down into the detail.
Calculating Growth Rate
There are many different ways to look at sales growth depending on which periods you compare. Using all of these will help you gain a detailed insight into sales growth. However, you must also understand the limitations of each.
Month on Month
The first and most obvious way to measure sales growth is by undertaking a month to month comparison. For example, you may decide to measure consecutive months of revenue to understand how much sales have grown from one month to the other.
Although useful, this assessment does not account for annual fluctuations, such as the fact that retail sales in December are likely to always be significantly higher than in March.
To calculate your month to month growth percentage, subtract the current month’s revenue from the previous month, then divide the answer by the previous month’s revenue and multiply by 100.
April revenue: $15000
March revenue: $10000
15000 – 10000 = 5000
5000 / 10000 = 0.5
0.5 * 100 = 50% growth
Year to Year
Comparing monthly revenue year to year is a good way to account for yearly trends and fluctuations. For example, comparing December sales in 2020 with December sales in 2019 will give you a good picture of sales growth in a more comparative period.
This can be calculated in the same manner as month to month growth, but by using revenue figures from the same month in separate years.
December 2020 revenue: $25000
December 2019 revenue: $23000
25000 – 23000 = 2000
2000 / 23000 = 0.087
0.087 * 100 = 8.7% growth
Quarterly or Annual Growth
Month to month growth, whether consecutive or yearly, gives you a good indication of the day to day success of your sales operations. Assessing larger periods can help you level out potential anomalies and identify the bigger picture.
For example, you may compare quarterly or yearly data. Again, this can be calculated in the same way as other growth, but instead using figures from a larger period.
Q2 2020 revenue: $107000
Q2 2019 revenue: $87000
107000 – 87000 = 20000
20000 / 87000 = 0.229
0.229 * 100 = 22.9% growth
The calculations above will give you a good idea of actual growth. However, to use these figures for decision-making purposes context must be added. Adding context will help you understand why your results are what they are and whether you can do anything to positively impact them in future periods.
The first way to add context is to assess any market trends that may impact results. For example, if the government has offered tax relief on a particular product for some time this may have created growth that may be difficult to replicate in future months.
There may also be anomalies in results, especially when assessing growth month to month. Anomalies may occur where a large, irregular win that has taken considerable time to push through occurs in one month.
You may also want to assess and compare profitability to give a true idea of the value that sales activity is providing the company. For example, sales revenue may increase exponentially during a time when large investments are made in the sales team. By assessing overall profitability you can offset the investments made against revenue to show the actual increase in success.
Measure & Grow
Calculating your company’s sales growth rate is the single most helpful action you can take to facilitate future growth. This information will allow you to assess past and current success, helping you plan the next steps you are going to take.
How do you currently measure sales growth in your company?
Feeling inspired to delve into data? Check out this post on using sales data to drive sales.