How to Calculate Your Sales Growth Rate (with Examples) (2024)

“A goal without a plan is just a wish.”

This quote by famed author Antoine de Saint-Exupery has made its way from literary circles into conference rooms because of its powerful message: To turn a goal into reality, you need an actionable strategy.

Want to boost your financial performance? Start measuring your sales growth. You can use this data to frame what’s possible, motivate your team during slow periods, keep them focused on goals, and track progress. Learn how to calculate sales growth and improve your bottom line with strategies you can start using right now.

What you’ll learn:

• What is sales growth?
• Why is it important to measure sales growth?
• How to calculate sales growth
• Variables in sales growth rate
• Sales growth rate example
• Best practices for monitoring sales growth rates

What is sales growth?

Sales growth is the rate at which a business increases sales rates or amounts during a fixed period of time. A high sales growth rate is often a sign of financial health to your shareholders. On the flip side, if your rate decreases in comparison to prior periods, it might be time to look at a different sales strategy.

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Why is it important to measure sales growth?

Measuring sales growth is the way you can gauge progress toward a predetermined goal. Depending on the speed and intensity of that growth — and how likely it is the growth will allow a business to hit its goal —sales leaders may need to update sales strategies. That’s the intent of accurateforecasting, which takes a look at sales performance to see if a team is on track to hit their targets. It’s also an excellent way to keep an eye onrecurring revenueor the revenue a company should always expect to make.

Sales growth also provides a powerful narrative that sales leaders can use to motivate their teams. Being transparent with numbers and data can help reps visualize their contributions and shortcomings and provide a realistic framework for improvement. It can also shed light on areas whereteams can work togetherto achieve goals and support business growth.

Now, let’s take a look at how to calculate sales growth and the variables you need for your calculations.

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How to calculate salesgrowth

The formula for how to calculate sales growth is:

(Current period sales – prior period sales)/prior period sales x 100

This formula calculates the difference in sales between the two time periods as a percentage of the previous time period’s sales. A positive percentage indicates sales growth, while a negative percentage shows a decline in sales.

You decide which time to measure by choosing two fixed periods — Q1 2023 and Q1 2024, for instance — and the net sales from each period to calculate if your business’s sales revenue increased.

Once you know your sales growth percentage, you can create data-driven sales strategies to keep the momentum going or boost it. We’ll break down what each variable in the calculation means.

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Variables in sales growth rate

To calculate your sales growth rate, you’ll need the following components:

Comparable periods

You should compare two similar time periods (consecutive or year-over-year). For example, you can compare the end of your fiscal year for 2022 and the same end of the fiscal year for 2023 to learn how profitable you were from one year to the next. Or you can compare consecutive months — September to October — to identify significant gains or losses month over month.

Why this is important:To learn the most from your data comparison, your time periods should eliminate any variables that will significantly skew your data. For example, you wouldn’t want to compare December and June, because holiday spikes in December will likely affect your numbers. But you can compare June to July, Q1 to Q2, or Q1 of 2022 to Q1 of 2023.

Net sales for each period

The net sales for your business is the total sales revenue, excluding any sales returns, allowances, and discounts. You will need to get the total sales revenue from your finance team for each period. Just subtract returns, allowances, and discounts to get net sales.

Why this is important:Determining the net sales ensures the accuracy of your growth measurements. Otherwise, you’re including revenue that will ultimately be subtracted — like returns, allowances, and discounts.

Once you have both your comparable periods and net sales for each period, plug these figures into the sales growth formula.

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Sales growth rate example

To understand this concept, let’s see how this would play out for a new bookstore.

John, the bookstore owner, wants to track the business’s sales growth rate throughout its first few months in business. He launched the business in late summer, so opts to look at September and October. September net sales were $5,000, while October net sales were $6,000.

Let’s see how he can use the sales growth rate formula to determine the bookstore’s growth:

Sales growth = (current period sales – prior period sales)/prior period sales x 100

Step 1:Sales growth = $6,000 – $5,000 = $1,000

Step 2:$1,000/$5,000 = 0.20

Step 3:0.20 x 100 = 20%

Sales growth= 20%

As we can see, the bookstore is already seeing growth. John continues this process for the next 10 months, keeping market trends in mind. He knows new stores tend to see sales spikes when they first open and during the holidays, but he’s also mindful of dips — most notably, a decrease in sales after December.

After several consecutive months of 10% sales growth, John has his target: nothing below 10%, month over month. If he sees the sales growth rate falling below 10%, he’ll need to look at a new sales or marketing strategy, like investing in social media marketing to increase brand awareness and get back on track.

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Best practices for monitoring sales growth rates

Sales growth rates signal a need for doubling down on strategies that work, or revisiting strategies that aren’t. Use this information to motivate your sales reps and make sure you’re on track for overall business growth. Here are some best practices to keep in mind:

Determine your business’s benchmark

Determining a good sales growth rate is hard because of the variables involved. According to theU.S. Department of Commerce, retail sales, excluding auto and gas, grew by 4.9% in 2023. Once you get into the details, that number varies significantly depending on company goals, industry, and stage of cfompany growth, whether it’s a startup or an established business.

Instead of chasing a single benchmark you find from one source or from a single competitor, consider averaging growth trends within your industry. Also, make sure you keep in mind what’s possible for your team; aggressive but attainable sales goals can make a positive impact on performance, though overly aggressive goals can be demotivating. If you’re not sure where the perfect middle is, use sales forecastingto help you predict how much your company will sell within a specified timeframe, then adjust your goals accordingly.

Lean on data

Analyzing historical sales growth rates lets you set future benchmarks and achievable goals for your sales team based on past performance. If you notice that growth is stagnant or falling below expectations, you can use data to investigate the cause. In short: Always have your eye on the data, as that will reveal dips you can then address with strategy or explain with seasonal ups and downs.

Consider adding resources

When you’re in tune with your sales growth potential, you can advocate for resources needed to fuel expansion, like hiring staff, implementing new technologies, or developing marketing campaigns.

Use technology to help you automate and streamline

Automatingcertain processes can drive sales growth. After all (and as every rep knows) redundant tasks and tedious calculations can be a breeding ground for human error.

Streamline your data entry and email communications with automation platforms, so your sales reps can focus on selling. An all-in-one CRM platform, such asSales Cloud, can help you hit your growth targets by tracking quota attainment, sales forecasting, and opportunity insights.

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Dig into the numbers and drive growth

Monitoring sales growth rates is a smart and necessary part of any sales process because it helps you make informed decisions about your sales strategy. Once you have the data, you can start boosting your numbers with marketing campaigns, customer service efforts, and tailored promotions.