How to Calculate the Percent Sales Growth on an Income Statement
Percent sales growth measures the increase in sales between two accounting periods as a proportion of the older period’s sales. When you review your small business’ income statements, it is important to calculate your percentage sales growth between two consecutive periods, as well as between the same periods in two consecutive years. Growth between consecutive periods, or sequential growth, helps you gauge your progress from quarter to quarter throughout the year. Comparing the same periods in different years, or your year-over-year growth, helps you measure your sales increase without the effects of seasonal fluctuations.
Locate your small business’ total sales on your most recent quarter’s income statement and on the income statement from the same quarter a year ago. Also find your total sales from the quarter before the most recent quarter. For example, assume your small business had total sales of $35,000 and $40,000 in the first and second quarters of this year, respectively, and $30,000 in sales in last year’s second quarter.
Subtract the previous quarter’s sales from the most recent quarter’s sales. In this example, subtract $35,000 from $40,000 to get $5,000.
Divide your result by the previous quarter’s sales and multiply by 100 to calculate your sequential sales growth as a percentage. In this example, divide $5,000 by $35,000 to get 0.143. Multiply 0.143 by 100 for 14.3 percent sequential sales growth in the most recent quarter. This means sales improved by 14.3 percent in the second quarter compared to the first quarter.
Subtract the sales in the previous year’s quarter from the most recent quarter’s sales. In this example, subtract $30,000 from $40,000 to get $10,000.
Divide your result by the sales from the previous year’s quarter and multiply by 100 to figure your most recent quarter’s year-over-year percentage sales growth. Concluding the example, divide $10,000 by $30,000 to get 0.333. Multiply 0.333 by 100 for a 33.3 percent year-over-year sales growth. This means sales were 33.3 percent better in this year’s second quarter than in last year’s second quarter.
You can also calculate your percent sales growth between two full years. Monitor your expenses and cash flow in addition to your sales growth. If you experience rapid sales growth and your cash flow can’t keep up with rising costs, you might need to obtain additional funding.