Sales growth is the percentage increase in a company’s net sales from one fiscal period to the next. It measures the change in revenue over a predetermined time frame.
The most important metric for determining a company’s success is sales growth. It shows if a company is expanding or contracting. Additionally, it shows whether the business is on track to meet its financial objectives. Comparing revenue between two fiscal periods demonstrates the rate of growth – positive or negative, of a business. Net sales are total sales revenue, fewer returns, allowances, and discounts. It is an essential sales KPI for firms to assess their total financial performance and determine their future potential.
It’s also crucial to any company’s marketing plan because it serves as a barometer for your enterprise’s performance. Sales growth can be stated as a percentage or in absolute numbers, such as dollars or units, by comparing current sales to sales from prior years. You would contrast a period of lower sales from earlier with a time of higher sales from later. The two eras often have a similar length. For instance, you wouldn’t compare net sales from one fiscal year’s quarter to the previous fiscal year. Instead, contrast the sales of two subsequent fiscal years that ended on March 31.
The calculation of sales growth is done in a variety of methods. The most frequently used method is to estimate the average yearly sales growth rate (ASGR).
Why Is Sales Growth So Important?
The sales growth rate gauges how well your business can produce income from sales over a predetermined time frame. Businesses can prevent being surpassed by rivals and stagnating with revenue growth.
Your company uses this rate to look at internal successes and problems. Still, investors also analyze it to see if you’re a company on the rise or starting to stagnate. Sales growth is one of the most powerful metrics in any business; it is directly tied to revenue and profitability and is a core metric by which you can measure the health of a sales team. If sales are the heartbeat of an organization, sales growth is the heart rate monitor – indicating whether revenue goals are on track. An understanding of this metric is key to determining and executing business strategy.
Importance of sales growth:
- Sales growth is a sign that the implemented policies are sound and effective. A green signal indicates that something is being done correctly, whereas a red signal indicates it is time to halt and consider things. Positive sales growth is a green signal.
- A company’s goal is positive sales growth because it results in increased earnings. Positive sales growth also indicates that market circumstances are favorable and that the company’s current strategy or technique is effective. While achieving positive sales growth may be simple, keeping it going is difficult.
- A decline in sales growth indicates that the business has to alter. If there is a negative rise in sales, something needs to be altered or rectified. Therefore, the corporation must revamp its current teams, rules, and goals for the upcoming year.
- Increases in market share, consumer acceptance, and user base indicate positive sales growth. It indicates that the product is finding favor among consumers.
- The company needs to adapt to the changing market to maintain positive growth. Thus, positive sales growth also indicates making necessary changes to the company’s current work to improvise and adapt to the market needs and customer demands in the long run.
- Different sales growth comparisons help a business identify ways to boost sales. The kind of sales growth research a firm uses will define where it stands in the market. A more in-depth study will determine the cause of the increase or reduction in revenue growth, such as customer sales growth analysis.
- Analyzing sales growth answers the ‘Why’ for the company. Why is there growth, or why is there negative growth? Answering that question would determine the strategy to follow.
How Many Types Of Sales Growth Are Followed By Various Companies?
A firm can expand in four ways: strategically, internally, organically, and finally, through partnerships, acquisitions, or mergers.
Learning about these four growth categories helps make business planning initiatives more efficient and well-planned.
Organic:
The simplest strategy for corporate growth is organic growth. Fortunately, it is also acknowledged as the most effective approach. It entails observable and palpable firm expansion, from creating new items to opening a new retail location. This kind of corporate expansion is regarded as the simplest but most efficient. It works best for new businesses and startups and has a shorter-lasting impact on well-established brands. It suggests a physical development of the firm, such as updating the product lines, producing more goods, working several shifts, renting a sizable location, creating a new storefront, etc.
Organic growth often demands extra physical space to serve clients as more goods or services are offered, and sales rise. This strategy enables you to create more goods, match the demand, and serve more clients by enlarging your business space. It should be highlighted, nonetheless, that an organic growth approach is only long-term viable.
Strategic:
This strategy is effective for long-term objectives and businesses going through organic growth. They use the revenue generated by organic growth to fund their strategic growth plans. Strategic growth has a longer time horizon than organic growth. After the organic growth phase is through, a strategic growth approach is a fantastic choice. The resources required make it essential to complete the organic growth stage before moving on to the strategic growth stage. Ideally, the organic growth stage will produce sufficient capital for a company to invest in long-term growth goals.
Business planning initiatives should always make sure to consider strategic growth. Examples of strategic expansion strategies include introducing new items for a product line and updating marketing plans to target a particular new market demographic.
Internal:
The main objective of internal growth is to utilize and optimize available resources. It is often utilized between an organic and strategic strategy due to its ability to optimize resource usage without necessitating a large financial investment. Instead of investing in expanded production and business developments, internal growth aims to use current resources more purposefully to optimize the company’s overflow.
Examples of internal growth may include a leaner business strategy or business model changes for resource optimization. Although internal growth may initially appear intimidating to team members, optimizing the available resources is well worth the effort. It can involve building lean systems to cut expenses or employing a marketing automation tool like SendPulse.
Collaboration, Acquisition, or Merger:
Many corporations may choose a merger, acquisition, or partnership as a growth strategy. Partnership, merger, or acquisition is generally considered the riskiest growth strategy type with the highest potential for reward. This strategy can facilitate an easier entry into a new market while expanding an existing customer base. Additionally, expanded production capabilities can make the creation and introduction of new products go much more smoothly. Another notable benefit of executing an acquisition, partnership, or merger is the potential to help business innovation and increase the likelihood of business success through collaborative efforts. Such a partnership helps companies launch a new product, produce more goods, grow both markets, and enjoy customer loyalty to another brand.
How Do You Measure Sales Growth?
You’ll need a few actual revenue figures to calculate your sales growth. You can obtain them from annual or quarterly reports or figure them out using the formula for total revenue. You may compute your sales growth once you have the current and prior periods’ revenue.
The formula for calculating sales growth:
( Sales in the current period – sales in the previous period ) / ( sales in the previous period ) *100
Start with:
- Take the current period’s net sales and subtract the previous period’s net sales.
- Divide the outcome by the prior period’s net sales.
- To find the percentage increase in sales, multiply the figure by 100.
Your sales and revenues are increasing, as indicated by the positive sales growth rate. A negative figure, on the other hand, signifies a decline in sales and revenue. It serves as a warning to take action before it’s too late. One of the most crucial factors for investors and analysts to consider when assessing a company’s performance is its sales growth rate. It displays the amount of money a company makes and the potential increase in revenue.
Final Thoughts:
There is no one-size-fits-all recipe for increasing sales. Sales development requires rigorous planning on the way there. Business growth is crucial for bottom-line profitability and business success. Every business should be aware of the important differences between business growth and growth-driven businesses. Four types of business growth include organic, strategic, internal, and lastly- acquisition, merger, or partnership. To get a result of sales growth, you have to apply the exact formula explained above to get perfect results in your sales growth, monthly or yearly.
