Understanding how well your business is performing is important for strategic planning and future success. But, how do you know whether a business is doing well or not? One of the most effective ways to determine your business’ success is through calculating sales growth. Sales growth gives you a detailed look at how your revenue is changing over time, and this helps you to measure the effectiveness of your business strategies, processes and marketing. By applying a simple formula for sales growth, you can gain valuable insights into your business’ performance, track progress and identify areas for improvement.
Why You Should Measure Business Growth
Measuring business growth is a key part of assessing the effectiveness of your strategies and ensuring long term business success. By tracking key performance indicators (KPIs), you can gain an insight into your progress across critical areas. This includes KPIs such as customer acquisition, customer retention, sales, financial performance and market reach. This data allows you to make informed decisions, refine strategies and optimise business operations to drive continuous improvement, success and growth.
Measuring business growth provides a clear understanding of how well your business is performing over a set period of time. Without accurate data, it’s difficult to know whether your efforts are translating into actual progress and moving your business forward. Without data, it’s hard to identify areas that may need to be improved. Monitoring growth helps you to identify trends, spot business opportunities and avoid risks before they escalate.
Plus, measuring business growth also offers insights into customer behaviour and customer satisfaction. It helps you to understand how well your business is meeting customer needs and where improvements can be made to enhance the overall experience someone has with your business. Measuring growth also ensures that everyone is focused on results and outcomes, which empowers employees to work toward specific goals, leading to greater productivity and alignment across the business. When there are set goals in place, employees are more likely to focus on reaching them.
The Benefits of Measuring Sales Growth
Regardless of the industry that you work in, or the type of business that you have, there’s no denying the benefits of measuring sales growth.
- It Helps You to Identify Improvement Opportunities – Regularly assessing sales growth helps you to pinpoint areas that require your attention. By analysing trends and patterns, you can identify aspects of your business that are underperforming, and then you can address them before they become an even bigger problem. This enables you to make adjustments quickly, optimise strategies and capitalise on growth opportunities before your competitors do.
- It Helps You to Evaluate Progress and Performance – Sales growth is a key indicator of business performance. By closely monitoring sales growth, you gain a precise measure of how well your business is progressing. This insight allows you to assess the effectiveness of your current strategies and make informed decisions about future initiatives.
- It Gives You an Insight Into Customer Behaviour – Sales growth metrics give you an insight into customer habits and preferences. By looking at these trends, you can better understand what drives customer purchases and how their behaviour evolves over time. This information allows you to refine your marketing strategies, tailor your messaging and create offers that really resonate with your target audience.
- It Helps You to Allocate Resources Effectively – Understanding which areas of your business are driving growth helps you to allocate resources more effectively. By identifying high performing areas, you can direct your investments, time and effort towards aspects of your business that achieve the best results. This ensures that you are maximising your resources and focusing on activities that contribute most significantly to your growth goals, and not wasting resources on areas that aren’t making much of a difference.
- It Allows You to Plan Ahead – By measuring business sales growth, you have the ability to strategically plan ahead. It helps you to project future performance, set realistic goals and develop actionable plans to achieve them. By analysing historical business growth trends, you can make more accurate predictions about future sales and market conditions. It gives you everything you need to determine whether scaling, breaking into new markets and expanding your reach are viable options.
What Do You Need to Measure Sales Growth?
There are three key things you need to measure sales growth; income statements, net sales and the ability to compare the two.
- To calculate the growth of a business, start by gathering your income statements, which provide a detailed view of revenue, costs and expenses over a specific period.
- Then, focus on net sales, which reflect the total earnings after any returns and discounts have been taken into account.
- To measure growth, compare the net sales figures from the current period to those from a previous period. This comparison helps you to determine how much your sales have increased or decreased.
The Formula for Sales Growth
When it comes to calculating the growth of your business, There’s a formula for sales growth that you can use. The final formula for sales growth is Sales Growth = (Sales Increase / Total Sales) x 100 and here’s how to use it.
- Calculate Your Total Sales for the Current Period – To calculate the growth of your business, you need to start by collecting your sales data for the current period. This should include all sales figures, but minus any discounts, taxes, returns and allowances. The result will give you the total sales for this period, which you will use in the formula.
- Determine Your Net Sales from the Previous Period – Next, you’ll need to find the net sales figures from a previous period. This could be the last month, quarter or year. A lot of businesses choose to compare the same period over two years, which is when you compare your current period’s sales with the same period from the previous year. You’ll be able to find this information on your income statements.
- Take Away the Previous Period Sales from the Current Period Sales – To find the sales increase for your business, take the net sales from the previous period away from the current period’s net sales. This will give you the increase or decrease in sales.
- Calculate Your Business’ Growth Ratio – To calculate the growth ratio, you need to divide the sales increase by the net sales of the previous period. This provides the ratio of growth relative to past performance.
- Convert the Growth Ratio to a Percentage – To give yourself a set figure for the growth ratio, multiply it 100 to express the growth as a percentage. For example, if your sales increased from £100,000 to £125,000, your sales increase is £25,000. If you divide £25,000 by £100,000 you’ll get 0.25, and multiplying this by 100 gives you a growth rate of 25%.
By using the formula for sales growth, you can accurately track your business’ sales performance over time. This approach also allows you to compare your business’ growth with your competitors, which will give you an insight into your market position and overall success.
Have a Deeper Understanding of Your Business’ Performance
Accurately measuring sales growth gives you a deeper understanding of your business’ performance, allowing you to make informed decisions about resource allocation and strategy adjustments. Whether you’re hoping to boost your sales, optimise your marketing efforts or rise above competitors, knowing how to calculate sales growth is key.
As business growth partners, we calculate the growth of your business and use the information to help you achieve your long-term goals. You might want to scale your operations or expand into new markets, or you might be thinking about partnering with another business in your industry. These are all things that the Profici team can help you with. Get in touch with our experts today to find out more.
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