There are a lot of skills that an entrepreneur needs in order to be successful. From having social skills to work with customers and employees, to knowing basic financial equations. All of this is detrimental to your business. One such skill to know is how to calculate sales growth for your business. If you have a small business then it is a good idea to know if you are making money or have plateaued. The best way to go about it is to calculate the sales growth.
Not a math person? No worries! This article will help you to know how to calculate your sales growth. Let’s get started!
Sales Growth: What Is It?
To know your sales growth, you first need to understand what it is. Sales growth refers to the percentage growth in net sales from each fiscal period. Basically, it boils down to comparing your profits from each fiscal period.
Note, it is better to compare sales from consecutive years rather than mixing them together. That is not a good way to calculate your growth because it would not make sense that way.
Why Is It Important?
Sales growth is important because it gives you valuable insight into a variety of things. This can include:
- The state of the economy. A high percentage of sales growth shows that customers have faith in the economy and tend to spend more. But, if during this time there is stagnation, then you know customers are not buying as much.
- Business profitability. Seeing how well you do each financial period shows the profitability of your business. You want to know if this can boost your stocks and other increases with your shareholders.
- Periodic financial performance. What this means is that you learn if sales had gone up or down during the period and by how much.
- Competition. Having the skill of calculating sales growth allows you to compare yourself to your rivals.
- Improvement. Yes, you can even see what areas you are doing poorly in from the calculated growth. Use that insight to plug any holes in your ship!
- Investors. Having a high growth rate can attract investors to you. That is because investors like to work with lots of sales growth.
All of this is crucial to having a successful business. It also allows you to adjust your marketing strategies depending on factors such as the economy.
What is Needed for the Calculation?
There are just a few things that are needed to calculate. First, you need the net sales figures from the financial periods that you wish to compare.
So, you need:
- An income statement that has the net sales for the periods you are comparing.
- A separate income statement for the periods. They should have the net sales for the appropriate period on these.
Also, an income statement can refer to net sales as just sales.
Calculating Sales Growth
Now that you have all of your resources, it is time to actually calculate the sales growth. So how do you do it?
First, subtract the net sales of the last financial period from the current one. Then, divide the outcome by the net sales of the last period. Finally, multiply the outcome by 100 in order to get the percent sales growth.
The formula should look like this:
G= (P2-P1)/P1 x 100
P2 is the net sales of the period you are on while P1 is the prior period.
What is Considered a Good Sales Growth Rate?
The answer to that question depends on what the business owners consider a good sales rate. A good year, actually, just “good” in general will fluctuate with the economy, world events, and other factors.
Don’t be upset if it happens to be a bad year for sales. It happens to everyone. What you have to do next is solve what went wrong and what you are going to do to fix it. That way, you have a more successful next year.
Calculating sales growth is just another important skill to have under your belt. It can certainly be an easier thing to handle if you are just a small business owner. But, if you are a part of a large business, then fortunately, you don’t have to do that by yourself. If anything, that belongs to the financial department to figure out. If you are not a part of that, then calculating the growth is not as important.
But, if you are a leading member of the team, then knowing how to calculate growth is good to know. You want to be ahead of your competitors and have all the customers flock to you.
Now that you know how to do it, why don’t practice it yourself so you get the understanding down? Turns out, math is important. Who knew?