Is your small business growing or stagnating? One way to tell is to calculate your sales growth.
Not sure which numbers to crunch? Keep reading to learn how to calculate sales growth.
Sales growth is the percent growth in the net sales of a business from one fiscal period to another. Net sales are total sales revenue less returns, allowances and discounts.
You would be comparing an earlier period of lower sales with a later one of higher sales. Generally, the two periods are also of a corresponding length. For example, you would not compare net sales from one quarter of one fiscal year with the full year from another. Instead, you might compare sales from two successive fiscal years ending March 31st.
Calculating and analyzing sales growth can inform you about:
You’ll need the net sales figures from the two financial periods you’re comparing. As such, you’ll need either:
A comparative income statement that cites the net sales for both periods.
A separate income statement for each of the periods. Each should cite the net sales for the relevant period.
Keep in mind that the income statement may refer to net sales as “sales.”
To start, subtract the net sales of the prior period from that of the current period. Then, divide the result by the net sales of the prior period. Multiply the result by 100 to get the percent sales growth.
Below is a formula for how to calculate sales growth:
G = (S2 – S1)/S1 * 100
S2 is the net sales for the current period
S1 is the net sales for the prior period
Let’s take a look at an example. Harry’s Auto Parts wants to figure its sales growth for the years ending March 31st, 2017 and March 31st, 2018. The net sales for the former period were $201,000. The net sales for the latter period were $210,500.
The business had an annual sales growth of 6.2 percent.
Here’s the math:
S2 = 213,500
S1 = 201,000
G = (213,500 – 201,000)/201,000 * 100
G = (12,500)/201,000 * 100
G = 0.0622 * 100
G = 6.2 percent
What’s a Good Sales Growth Rate?
A good growth rate is whatever business owners and stakeholders determine to be so. Small businesses that made less than $5 million had a 6.1 percent sales growth on average in 2017, said SageWorks. That was a drop from the 2016 growth rate of 6.9 percent.
So “good” can vary from year to year. Look at sales growth alongside your historical performance and economic and competitor growth.