Many business owners ask the same question: “How do I calculate sales growth?” Knowing how your business is performing will help you develop strategies to improve it. There are several ways you can find out how much your company made last fiscal year. Let’s take a look at them.
Although sales growth is a term that is often used, it can be hard to calculate. This blog will show you how to calculate your sales growth and the importance of this metric for your business. We will also share some tips to help you grow your sales.
What is Sales Growth?
Let’s first understand what sales growth is before we get into how to calculate it. The calculation that you use to determine whether your sales are increasing is called sales growth.
This means that we, early-stage companies, are primarily focused on profitability from day one (or longer) to full cash flow.
The next step is to increase our market share, productivity, and engagement with customers.
We are committed to growing sales faster and staying ahead of our competitors when it comes to growth.
But if you view your business from a profit-based perspective and not an ROI/profit-based, it is easy to see how long-term sales growth is affecting profitability.
This means that if we ever acquire a company or raise money to grow our sales, we will need to replace the profits that many companies have not invested nearly as much in. It is important to determine if sales growth has surpassed all that investment.
In certain situations (eg due diligence or exit planning), sales-growth numbers can be used as a stronger metric than profits.
Instead of focusing on the bottom line only, there is another aspect that can be considered first: How profitable would sponsorship and investor money makes our company even after accounting for any additional fees?
This alternative solution is a great option for companies in the early stages.
The only difference is that we have the option to choose whether sponsorship or investor money can create more profits and/or sales, without losing market share.
This could change more than profit margins. It would also double revenue over time. As proven by remarkable success stories such as Facebook and Github.
Why should your business care about sales growth?
The way people do business has changed a lot over the last five years. Social media is integrated into all aspects of our lives, from how we communicate with family and friends to professional networking.
This social trend is increasingly being adopted by companies, from small start-ups to large multinational corporations. Companies are finding new ways to incorporate social media into their business models, which allows them to connect better with potential clients and customers.
This is evident in every industry, from local landscaping companies using Facebook or Twitter to promote lawn care services and big brands such as Ford Motors that use platforms like Pinterest to launch new products and promotions.
However, many businesses are failing to grow their sales. This is a problem that many companies appear to be experiencing. Businesses often focus too much on branding and marketing initiatives, without paying enough attention to what grows the bottom line: sales.
Despite all the advances in social media marketing and online marketing, nothing will replace a traditional sales strategy that focuses primarily on increasing your customer base and revenue.
These are Four Reasons That Will Help You in “How to Calculate Sales Growth”
1) Sales Growth = Higher Revenue
The best reason to increase sales is to generate more revenue. A well-executed strategy for sales will lead to more customers purchasing from you, which will increase your bank balance.
This simple equation is what drives every business: more money means a stronger business, which can invest back in the company and create new products/services.
2) Sales Growth = Increased Brand Awareness
Companies need to be online in today’s digitally driven world. Businesses need to promote themselves as a business to build brand awareness.
Because social media allows businesses to connect with potential clients around the globe and have the ability to interact on their terms, it is a powerful platform.
You can sell more of your services or products to increase brand exposure. This helps you build trust with your customers, which in turn leads to higher sales.
3) Increased Market Share
A company’s sales increase is a sign that it is growing its market share. This is because a company that sells more of its product/service begins to take market share away from its competitors.
Increased market share means that it is more difficult for rivals to take customers away. This can lead to the company being shut down. This is a good trend for any company because it allows them to become the dominant player within their industry.
4) Increased Sales Growth = Higher Employee Morale
A major benefit of increasing sales is the increase in employee morale. Employees feel valued and more motivated to work hard when their company is growing. This can lead to higher quality work and more enjoyment, which can eventually result in lower turnover rates.
How to Calculate Sales Growth
How do you calculate sales growth? There are many ways to calculate sales growth.
1. One-year percentage increase – To calculate the one-year percentage growth, subtract last year’s sales from this year’s and divide by last year’s sales.
“In 2010, total sales were $31,000. The 2011 total sales reached $39,000
39,000 – 31,000 = 8,000; 8,000 / 31,000 = 26%
2. Two-year percentage increase – Subtract the sales of the previous year from the current year’s and subtract this number from 100 percent. Divide the result by the previous year’s number.
This is a common way to measure overall corporate performance in business. It should be easy to apply to your numbers. “In 2009, total sales were $31,000. The 2010 total sales reached $39,000. The 2011 total sales reached $39,000
100% – (39,000 – 31,000) = 30%; 30% / 31,000 = 0.97%
3. Compounded annual rate of growth (CAGR) – This is the compounded annual rate that takes into account not only this year’s growth and decline but also past totals. This is often expressed in percentages and calculated using this equation:
((Ending Value / Starting Value), (1 / number years)) – 1.
“In 2009, total sales were $31,000. The 2010 total sales reached $39,000. The 2011 total sales reached $39,000
(($39,000 / 31,000) ^ (1 / 2)) – 1 = 19%
4. Rolling growth rate – To calculate the rolling growth rate over several years, subtract the previous year from this year and divide it by the last. This is multiplied by 100%.
This provides an overview of the business’s performance over the last few years, but it does not show long-term trends or changes in direction. “In 2010, total sales were $31,000. The 2011 total sales reached $39,000
(39,000-31,000) = 26%; 26%x100 = 260
5. Quarter-on-quarter Growth Rate – This is the rate of growth or decline in sales between consecutive quarters. It is calculated by subtracting the sales from the previous quarter to get the current quarter’s revenue. Divide the sales from the last quarter to calculate the percentage change. “Q1 2011 total sales were 10,000. Total sales in Q2 2011 were $11,000
(11,000-10,000) / 10,000 = 10%. 10% x 100 = 100
6. Month-on-month growth rate – This variation of the quarter-on-quarter calculation looks at consecutive months instead of quarters. It is calculated exactly in the same manner. “March 2011 total sales were 10,000. Total sales in April 2011 were $11,000
(11,000-10,000) / 10,000 = 10%. 10% x 100 = 100
10 Tips for Increasing Sales Growth
To win sales growth, you need patience, strategy, and planning. It is not possible to do it overnight. These 10 tips will help get you started on your journey to revenue growth.
1) Support Reps with Strategic Sales Tools – Sales reps will be more productive if they have the data to help them make smart decisions regarding winning new customers.
These tools include CRM Systems to track accounts and opportunities, as well as analytics software that measures performance against set goals. Instead of spending a lot on booths at trade shows, invest in technology to enhance your selling efforts.
2) Encourage Collaboration at All Levels – The best ideas come from everyone in an organization, not just the top executives. Sales representatives provide valuable insight into areas like customer needs and product benefits.
Encourage them to contribute. They should feel valued and recognized for their contributions. This could include sharing best practices and suggesting new ideas.
3) Promote Problem Solvers – As competition increases, so too does the pressure to win business. If sales reps want to keep up with their competitors, they must solve problems creatively.
Managers should reward them for their innovative solutions. They are more valuable than problem solvers the more complex a sale becomes.
4) Use Lean Methodologies – Sales teams can easily get bogged down in administrative tasks that take away from their selling activities.
Lean methods will allow teams to work faster and more efficiently by streamlining their processes. You’ll boost morale by allowing your team to concentrate on winning deals.
5) Measure what Matters – It is a big mistake to focus too much on key performance indicators, (KPIs) instead.
Analytics tools can help sales reps be more effective by providing insight into customer profitability, pipeline management, and lead management. They can also keep track of their progress by creating custom dashboards and reports.
6) Give Feedback Regularly – One-on-one meetings are crucial for sales reps to receive personalized feedback and coaching.
These discussions should not be held at the end or beginning of a deal. Regularly review the strengths and areas of improvement with your reps. This will motivate them to improve their skills and become better.
7) Provide Opportunities for Professional Development – Top-performing reps will eventually seek new challenges. They won’t be content with their current position and will instead look for new opportunities.
It will show your commitment to professional growth if you offer online training and support for team members who want to pursue executive education, such as an MBA.
8) Ask customers what drives their decisions – Sales teams can learn a lot about what goes them from customers.
It’s not necessary to guess why customers choose certain products over other options on the market. If asked the right questions, customers are often happy to share the reasons behind their purchases.
9) Celebrate wins – When a team is successful, we must celebrate. You could send a simple email congratulating the team or arrange a lunch for them.
Sales reps should feel valued for their achievements and hard work. Recognizing their efforts can motivate them to be their best.
10) Promote Risk-Taking – Sales reps must be open to taking risks to reach big goals. This could include pitching new products and services to customers or trying new sales techniques.
Managers should encourage taking risks by setting rules that minimize the potential for failure. Sales reps will be more open to trying new things and pushing boundaries if they have the right environment.
