Every business needs to increase income each year to stay ahead of inflation. The amount of sales growth a business shows is an important indicator of the value and financial health of that business. The sales growth of a business is a comparison from year-to-year or other specific periods.
A commonsense business adage says that if you're not moving forward, you're falling behind. In today's business environment, the status quo just isn't good enough to compete with similar businesses for consumer's dollars. A company's sales growth is one of the clearest indicators of its strength in the marketplace. It can be used to determine the value of a company, the worth of its stock or its future financial outlook. More than income or even monthly profits, a company's sales growth is the most significant signpost for a company's financial direction.
TL;DR (Too Long; Didn't Read)
Take the current period's revenue and subtract the past period's revenue. Divide the result by the past period's revenue to give you the sales growth between the two periods.
Comparisons for a Clearer View
Calculating your business's sales growth in one period is almost useless; it's the sequence of figures compared to each other over time that gives you a valuable financial picture. The various comparisons are the key to figuring out the state of your business. It's important to look at the whole picture of your industry. Compare sales growth figures from one month to the next, but also look at growth in this month versus this same month last year, which is known as year-over-year growth. To get an indication of your company's financial health in the current economy, take a look at the growth of any direct competitors you may have. Of course, sales growth isn't the only factor you should consider when determining the value or health of a business, but it is an important one.
Compare Apples to Apples
The speed at which a company is growing can be a critical consideration for any potential investor. The most direct way to assess how a company is doing is by checking its revenue growth rates, the simple calculation of how quickly their income is multiplying. The most important factor in determining a business's rate of sales growth is to compare two similar time periods. Compare apples to apples, not apples to oranges. The time periods must be equal in length as well as in the same economic circumstances. Compare December of one year to December of another, not December against April in the same year. The outside influence of holiday shopping will show a December sales growth that has absolutely nothing to do with the health of the business. It's because spending increases across the board during the holiday season.
Determining the Growth of Sales
Once you have two representative time periods chosen, the formula for finding sales growth is relatively simple. Take the current period's revenue and subtract the past period's revenue. Next, divide that number by the past period's revenue. Multiply that result by 100 to give you the percentage of sales growth between the two periods. For example, if your business had sales of $2,500 this month, and sales of $2,000 in the same month last year, the difference is a $500 increase in sales. Divide that increase by last year's $2,000 in sales to get 0.25. Multiply this by 100, and you'll find a 25 percent sales growth increase over last year.