How Do I Calculate A Growth Rate Of A Company?
Posted: February 20, 2023
As a business owner, it is important to have a very clear understanding of your company’s growth rate.
Calculating your growth rate can help you make more informed decisions on allocating resources and planning for the future.
In this blog post, we will explain the steps involved in calculating your company’s growth rate.
We’ll also explain the important considerations and decisions you can make for future growth once you know what your “growth rate” is.
The first step in calculating your company’s growth rate is to determine your baseline.
This could be your company’s revenue, profit, or any other metric that you want to measure.
In the example we’re going to use, we will calculate the growth rate of a company’s revenue over the past year.
Next, you need to determine the period of time that you want to measure.
In the example we’re using, we’ll measure the revenue growth over the past year.
Therefore, our current period is the last 12 months.
Once you have determined your current period, you need to determine your previous period.
In this example, our previous period would be the 12 months immediately preceding our current period.
Now that we have our baseline, current period, and previous period, we can calculate the percentage change in revenue. To do this, we use the following formula:
Percentage Change = ((Current Period – Previous Period) / Previous Period) x 100
For example, let’s say the company’s revenue for the past year was $1,000,000, and the previous year’s revenue was $800,000. Using the formula above, we can calculate the percentage change in revenue as follows:
Percentage Change = (($1,000,000 – $800,000) / $800,000) x 100
Percentage Change = (0.25) x 100
Percentage Change = 25%
Therefore, the company’s revenue grew by 25% over the past year.
Once you have calculated your company’s growth rate, interpret the results. With this calculation done already, it’s pretty straight forward to understand your growth rate… A positive growth rate indicates that your company is growing, while a negative growth rate indicates that your company is shrinking.
It’s important to understand what is driving your company’s growth (or lack thereof). This information can be used to make informed decisions about the future of your business.
It is also important to compare your company’s growth rate to industry benchmarks and competitors. This will help you understand how your company is performing compared to others in your industry. This comparison can help you identify areas where you may need to improve.
Comparing your growth rate to industry benchmarks will give you insight into how your company is performing compared to your competitors. Through this comparison, you can identify areas where your business may need to make changes or improvements. These changes can help you remain competitive in your industry.
Knowing how your company is performing in comparison to others can also help you spot emerging trends. This gives you a “heads-up” on initiatives that you can capitalize on before your competition does.
We like the following “checklist” of why it’s important to do this calculation and analysis:
1. It is essential to comprehend the reasons behind the development of your company.
2. It is also essential to comprehend the reasons behind the absence of growth of your company.
3. This understanding is necessary in order to make wise decisions about the future of your business.
It starts with simple numbers, but seeking to understand the factors contributing to your company’s growth or decline can help you. It can help you develop a more effective strategy for continuing to drive growth in the future.
Analyzing the data can provide insight into your financial performance. Recognizing the market trends that have an influence on your business can help you identify areas that need improvement. This alone can give you ideas on what to focus on for future growth!
Rizolve Partners understands the importance of company growth and, even more importantly, overall value acceleration. To learn more, check out our process expertise tips sheets here.