Though not the most glamorous task in sales, having a thorough understanding of how closed deals impact a company's bottom line and future growth is crucial. This is why monitoring the sales growth rate is crucial for businesses focused on scaling and expansion.
The sales growth rate is a metric that measures the speed at which revenue from sales increases during a specific period. It is an essential metric that provides data-driven insights for informed decision-making. A decrease in the sales growth rate compared to previous periods may indicate the need for a different approach by the sales team to drive revenue growth. On the other hand, a high sales growth rate is generally seen as a positive sign for company stakeholders.
To calculate the sales growth rate of a company, one must have the net sales value of the initial period and the current period, which can be easily found on an income statement. Using these values, the following formula can be used:
Sales Growth Rate = (Current Period Net Sales - Initial Period Net Sales) / Initial Period Net Sales * 100
For example, let's consider Serial Juice Co., a startup that specializes in delivering custom-pressed fruit and vegetable juices. Their sales team wanted to measure their sales growth rate from their fiscal year ending on April 30, 2021, to their fiscal year ending on April 30, 2022. During the initial fiscal year, they reported $750,000 in sales, which increased to $1,000,000 in the following year. Using the sales growth rate formula, we get a 33% growth rate.
Instead of solely measuring the sales growth rate for one year, many companies prefer to look at their growth performance over a certain number of years. This is known as the average annual sales growth rate, calculated by using the previous formula for each year and then finding the average of those values.
For instance, let's take GSD Company, which wants to measure its average annual sales growth rate over the past four years. Here are the annual sales values and growth rates for each year:
The average annual sales growth rate for GSD Company can be determined by adding all the growth rates and dividing it by the number of years, resulting in 10.28%.
It is crucial to keep in mind that a successful sales growth rate varies for different companies and industries. Various factors such as sales goals, strategies, leadership, stakeholders, and the sales team's bandwidth can significantly influence it. Additionally, monitoring competitors' growth can also provide valuable insights and opportunities for improvement.
Overall, comprehending and tracking sales growth rates can offer valuable insights into a company's current and future performance, aiding in data-driven decisions for a successful business.
