Is your business thriving, and steadily growing, or is it languishing in a state of stagnation?
To answer these questions, you need to delve into the numbers and assess your sales growth comprehensively. So, how do we figure this out? Well, there are a few tricks up our sleeves.
If you find yourself unsure about which metrics to analyse, fear not we’ve got you covered. In this blog, we will guide you on how to calculate the sales growth rate, providing you with the insights and techniques necessary to know the growth rate of your business. Let’s dive in,
What is the sales growth rate?
The sales growth rate is a pivotal metric that assesses an organisation's ability to generate incremental revenue within a specific timeframe. By regularly monitoring this rate, managers can pinpoint obstacles in their sales process, enabling them to address challenges effectively. Understanding this critical metric empowers organisations to assess their financial health accurately and make informed decisions.
Furthermore, when businesses seek external investments, the sales growth rate becomes a crucial factor influencing investment decisions. It signifies whether a business is growing and how fast, serving as a vital indicator of its success and trajectory toward financial targets.
Formula to calculate sales growth rate
To assess your business's sales growth and efficiency, a straightforward formula can be employed using the net income values from two distinct periods: the initial period and the current period.
Sales Growth Rate = (Current Period−Previous Period/Previous Period)*100
Consider this scenario:
Your company generated $120 million in revenue in 2022 compared to $100 million in 2021. Implementing the formula, the sales growth rate stands at 20%.
A positive growth rate signifies increasing sales and revenues, while a negative value indicates a decline, acting as a warning to implement corrective measures promptly.
This equation can also be applied to compare multiple years by substituting "current year" with "previous years." Moreover, examining sales growth on a monthly or quarterly basis involves adjusting the formula accordingly, replacing the year with the appropriate time frame.
Formula to calculate average sales growth rate?
Calculating the average annual sales growth rate involves determining the annual percentage increase in sales over a specific period of years and then averaging these individual growth rates.
Here's how you can calculate the average annual sales growth rate using a table of sales figures for different years:
Sales (in millions)
Step 1: Calculate Annual Growth Rate for Each Year
Annual Growth Rate=(Current Period−Previous Period/Previous Period)*100
For example, the growth rate from 2019 to 2020 is:
Growth Rate 2019-2020=(1.5−1.2/1.2)×100%=25%
Similarly, calculate growth rates for other years.
Step 2: Calculate Average Annual Growth Rate:
Average Annual Growth Rate=[ (Growth Rate 2019-2020) + (Growth Rate 2020-2021) + (Growth Rate 2021-2022) ] / 3
Average Annual Growth Rate=(25%+20%+22.22%) / 3
Your Average Annual Growth Rate ≈ 22.74%
In this example, the average annual sales growth rate over the period of 2019 to 2022 is approximately 22.74%. This rate provides a consolidated view of how the sales have grown on average each year during this period.
What is a good sales growth rate?
Determining what constitutes good sales growth for a company can vary widely depending on the industry, market conditions, and specific business goals. For example, in H1 2023 B2B SaaS averaged annualised growth rates of 10-11% which is 10% less than the previous year. Now there isn't a one-size-fits-all answer, as what may be considered excellent growth for one company or industry could be inadequate for another. However, there are several factors to consider when evaluating sales growth
Consistency: A retail chain experiences a 10% growth in sales for three consecutive years. This consistent growth indicates that the company's sales strategies are effective and sustainable over time. It shows that the company is steadily increasing its revenue without drastic fluctuations, reflecting a healthy and stable business model.
Profitability: A software company increases its sales by 15%, but due to efficient cost management and higher-margin product offerings, its net profit rises by 25%. This scenario demonstrates good sales growth because it involves revenue expansion and a significant improvement in profitability. A company's ability to convert sales into higher profits indicates a robust and successful sales strategy.
Alignment with Strategic Goals: A pharmaceutical company aims to expand its market share in emerging economies. It achieves a 12% growth in sales specifically in these target regions, compared to 5% growth in developed economies. This growth aligns with the company's strategic objective, showing that the sales efforts are directed toward the intended markets. Sales growth that aligns with the company's predefined goals and initiatives is a strong indicator of success.
Company Size: A small startup achieves a remarkable 50% growth in sales within a year. On the other hand, a large multinational corporation with an established presence achieves a 5% growth. While this growth percentage might seem modest compared to the startup, for a large company operating on a massive scale, a 5% increase translates into substantial revenue. Thus, what constitutes good sales growth can vary based on the size and scale of the company.
Key things to consider while calculating your sales growth
Calculating sales growth is a fundamental aspect of evaluating a company's performance and financial health. While calculating consider these key factors for better evaluation
Accuracy of Data: Ensure that your sales figures are accurate and include all sources of revenue.
Consistency in Time Periods: Use consistent time periods for comparison. For meaningful insights, compare sales figures over equivalent time periods, such as year-to-year, quarter-to-quarter, or month-to-month.
Consider Seasonality: If your business is seasonal, be mindful of comparing sales figures from different seasons. Seasonal fluctuations can impact growth rates.
Evaluate Customer Base: Consider the growth or contraction of your customer base. If your sales are growing, analyse whether it's due to acquiring new customers, increased transactions from existing customers, or both.
Competitive Landscape: Analyse how your sales growth compares to industry benchmarks and competitors. Understanding your position relative to the market provides valuable context.
Long-Term vs. Short-Term Growth: Consider both short-term and long-term growth trends. Sustainable, steady growth over the long t
Sales Growth Strategies for software companies
Here are a few sales growth strategies to consider,
1. Build a Strong Sales Enablement Strategy:
For B2B software companies, having a robust sales enablement strategy is crucial. This involves equipping the sales team with the right tools, knowledge, and resources to engage potential clients effectively. Sales enablement ensures that the sales representatives are well-informed about the software products, their unique selling points, and how to address customer pain points. It also involves continuous training and coaching to enhance their selling skills. By providing the sales team with the right support, they can have more meaningful conversations with prospects, thereby increasing the likelihood of closing deals.
2. Implement Account-Based Selling (ABS):
This approach involves deep research and understanding of the target accounts, personalised communication, and customised solutions. For software companies, ABS ensures that resources are utilised efficiently, focusing efforts on accounts that are more likely to yield substantial sales. By aligning sales and marketing efforts towards specific accounts, conversion rates can significantly increase, leading to higher sales growth.
3. Leverage Technology to Cater Modern Buyers:
Today modern buyers prefer product experiences for which B2B software companies must leverage technology that aligns with customer preferences. This includes having user-friendly websites, interactive product demos, on-demand access content, AI and more. These technologies can help you shorten your sales cycle, enable businesses to automate mundane tasks, optimise workflows, and make data-driven decisions, reducing operational costs and increasing productivity.
4. Focus on Customer Satisfaction and Retention:
Customer satisfaction is key to retaining clients and fostering long-term relationships. B2B software companies should prioritise customer success by offering exceptional post-sale support, regular check-ins, and addressing customer concerns promptly. Happy customers are more likely to renew subscriptions, upgrade services, and recommend the software to other businesses.
5. Continual Optimisation of the Sales Process:
The sales process is dynamic; it needs to evolve with market trends and customer expectations. Software companies should continually analyse their sales processes, identify bottlenecks, and optimise workflows for efficiency. This optimisation may involve streamlining communication channels, refining the lead nurturing process, or integrating new tools for better analytics.
Improve your sales growth rate with a demo experience platform
Enhancing your sales growth rate is pivotal for any business to sustain, and a demo experience platform can be a game-changer. Here’s why,
Picture this: you're giving potential customers a firsthand, immersive tour of your software. It's not just a demo; it's an engaging, personalised experience. You're not just showcasing features; you're solving their problems right in front of their eyes. This tailored approach builds trust like nothing else. When people see exactly how your solution can meet their needs, they're more likely to say, 'Yes, I want this!'
The demo experience platform offers more than just a buyer experience and here’s how it can help you accelerate your sales growth rate,
Engaging User Experience: A demo experience platform offers visually appealing, interactive product demos, captivating potential customers and encouraging deeper engagement, leading to increased interest and conversions.
Personalised Demonstrations: Tailored to individual needs, personalised demos showcase how your software addresses specific pain points, establishing an emotional connection and increasing the likelihood of closing sales demos faster.
Real-time Interactivity: Interactive features enable instant communication, allowing prospects to ask questions and receive immediate responses. Handling sales objections early on - promptly builds trust and accelerates decision-making, expediting the sales cycle effectively.
Data-driven Insights: Demo platforms provide analytics on user engagement, offering valuable data. By understanding user preferences and interests, you can refine your sales approach, focusing on what resonates most with your audience and increasing conversion rates strategically.
Improved Training & Channel partner monitoring: Internally, demo platforms serve as robust training tools. Sales teams can familiarise themselves thoroughly, delivering compelling demonstrations. Additionally, you can onboard customers, leverage channel partner enablement and maximise your partner network.