Whatever your line of business, revenue growth is likely to be a key objective. Selling more product from one period to the next shows that you're attracting more customers and thus have a better chance of sustaining your business. Calculating the percentage increase in sales across two or more periods can help you to spot revenue trends. It's a key metric for understanding whether the demand for your products or services is likely to be increasing in the future.
Measure Like for Like
To calculate the percentage increase in sales, you simply compare the sales figures for one period with the sales figures for a comparable period. The key word here is "comparable" – you must compare two periods of approximately equal length or your results will be distorted. Common periods include:
- The current accounting year versus the previous accounting year.
- The current month versus the previous month, for example, May 2018 versus April 2018.
- The current quarter versus the immediately preceding quarter.
- A month or quarter from the current year versus the same period for the previous accounting year, for example, Q2 of 2017 versus Q2 of 2018.
You can choose any period you like as long as it's a good basis for comparison. Seasonal businesses, for example, often want to know how a current quarter compares to the same quarter in the previous year. It wouldn't be useful, for example, to compare a sales period in low-season against a sales period in high season as this would skew your results.
Use a Formula
To calculate the percentage increase in sales, plus the net sales revenue figures for your two periods you can use the following formula:
(Net sales this period – net sales prior period) / net sales prior period * 100
Net sales are equal to the grand total of your sales receipts (gross sales) minus customer returns, discounts and allowances for defective merchandise. You'll find the net sales figure on the company's income statement.
Say that XYZ Company reported $300,000 in net sales revenue in Q1 of 2017 and $450,000 for Q1 of 2018. The 2018 $450,000 minus the 2017 $300,000 is $150,000 in actual sales revenue growth. Next, divide the $150,000 by $300,000, the 2017 Q1 revenue number. That's 0.5, which times 100 gives us 50 percent. This tells us that XYZ has earned 50 percent more sales revenue in Q1 of 2018 than the same period in the previous year.
Why It Matters
The result of this calculation can be a positive or a negative number. A positive number indicates that your sales revenue is growing. This is desirable for obvious reasons but it's important to look at the percentage itself – the higher the number, the better your company is performing. Context is important, here. For example, a mature company's 6-percent increase in net sales revenue may seem admirable, but if competitors are achieving 8-percent growth between the same two fiscal periods, the result doesn't look as promising.
When the Number is Negative
A negative number shows declining sales from one period to the next. You'll need to dig deeper to discover the reasons behind this trend. Do your sales representatives need additional training? Do you need to change the way you market your products? Is your pricing strategy poor? A single percentage decrease in sales figures has limited usefulness so be sure to run the calculation over multiple periods. This will help you to spot seasonal blips and fluctuations and get a more accurate picture of the company's growth position.
Jayne Thompson earned an LL.B. in Law and Business Administration from the University of Birmingham and an LL.M. in International Law from the University of East London. She practiced in various “Big Law” firms before launching a career as a business writer. Her articles have appeared on numerous business sites including Typefinder, Women in Business, Startwire and Indeed.com.