Businesses and particularly new businesses have a lot to take into account. One of the biggest things that you have to get right is the ability to calculate revenue growth.
As a new business owner, working out how to calculate revenue growth can often be a mammoth task and it can sometimes be difficult to know how you can do it.
Luckily, we’ve got the answers for you with this helpful guide that explains how to calculate revenue growth, along with other handy tips for you.
Read on to learn more.
What Is Revenue Growth?
It’s first perhaps important to determine exactly what we mean when we’re talking about revenue growth, before we move on and work out how to calculate it.
The revenue growth rate is the measurement that shows the month on month percentage increase in your revenue. This is usually one of the most critical points when we’re looking at startup KPIs.
This revenue growth rate is highly indicative of how fast your business is growing. Most business owners that have grown their business over a number of years will agree that it is one of the best indicators of your business’s success.
As a start-up, you’ll need to be able to calculate revenue growth. If you can’t do this, you’ll not be able to know if your business is doing well or poorly.
The next most important thing is probably active user figures, but this is certainly the first aspect you’ll be looking at getting right. So, let’s now look at how you can calculate your revenue growth rate.
Calculating Your Revenue Growth Rate
To correctly calculate your revenue growth rate, you need to subtract your first month’s revenue from your second. The result then must be divided by the first month’s revenue and then you have to multiply this by 100.
This figure is then used as your percentage rate. So, let’s look at a basic example for reference:
Month one revenue = $1,000
Month two revenue = $3,500
$3,500 – $1,000 / $1,000 x 100 = 250% revenue growth rate.
As a start-up business, you may wish to look at how your weekly growth rate is doing. The calculation is exactly the same, but instead of looking at monthly figures, you simply do the same calculation for your weekly figures.
What Are The Pros And Cons Of Calculating Revenue Growth Rate This Way?
Nothing is without scrutiny, and working out your revenue growth rate in this manner is indeed important, but it’s not without its drawbacks. Let’s take a look at these individually for a more critical view.
Looking at your revenue growth on a month by month basis can be very beneficial rather than simply looking at your current revenue figure. It allows you to track your business performance and hone in on what is going well, or not going well.
As a business owner, you’ll almost certainly want to be keeping an eye on this data, but it’s not just handy for you personally. Potential investors will almost always want to see this information to make an informed decision.
Not only this, other business partners, your employees and sometimes even Government agencies may wish to see this information – although that is extremely rare.
The point is, having a good method to work out how your revenue growth rate is doing is very important. But, this method isn’t always ideal.
Looking at your revenue growth rate on a month by month basis is not always the best, especially for start-up businesses.
It can be extremely misleading for new business owners because exponential growth is almost always going to happen in the early days of the business.
As a result, some new businesses will expect to see this growth continue and make inaccurate predictions which they may pitch to investors. By doing so, business owners may make promises that they cannot deliver on.
Additionally, it may come as a shock to see the growth rate decreasing over time and business owners may decide to spend investment capital on things they actually cannot afford.
The best way to get an accurate estimate of your revenue growth rate is to calculate for a longer trend of around 12-18 months.
Other Things To Consider
New businesses should be looking at other relevant KPIs and start-up metrics. These may include, but are not limited to:
- CAC (Customer Acquisition Cost)
- Burn Rate
- Customer Churn
What Should My Revenue Growth Rate Look Like?
It’s almost impossible to give you a figure that you should be attaining because it will vary from company to company if you were looking at comparisons.
However, you’re likely to be looking at between 15 and 45 percent revenue growth annually. Higher growth rates typically come through companies with less than $2,000,000 annual revenue.
Can I Improve My Revenue Growth Rate?
Your growth rate will come down to how well you’ve been doing for sales if we’re looking at a month by month calculation. Now, you can improve this growth rate but there’s so many things you have to think about.
Primarily, you have to consider trying to be more aggressive with your tactics for selling. Perhaps try to upsell your products, particularly if there’s already been interest shown with your products.
However, it is important to not overdo it which can be off-putting to your customers and may actually be detrimental to your revenue growth rate in the future, as you could lose repeat business.
The best thing to do is to consider new sales opportunities, strategies and assess your staff’s training, if applicable.
The Bottom Line
Calculating your revenue growth rate is critical, especially as a new or start-up business. Knowing how to use the information above may prove to be invaluable moving forward.
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