There’s a lot of debate as to what makes a business “successful.” Is it money? Is it household-name branding? Is it longevity? All may seem like markers of a successful company to the general public. But what makes a business succcessful in the eyes of other businesses? A soaring sales growth rate.
We know the last thing you need is yet another sales metric to track, but since the rest of the business world will be watching your sales growth rate, you’ll want to keep an eye on it as well.
Read on to learn what sales growth rate means, what makes it good, how to calculate it, and how to improve it.
Sales growth rate meaning
Sales growth rate measures your company’s ability to generate revenue through sales over a fixed period of time. This rate is not only used by your company to look at internal successes and problems, it’s also analyzed by investors to see if you’re a company on the rise or a company starting to stagnate.
It’s vital to understand how to calculate your sales growth, how to improve it, and what makes it impressive or average. Sales growth rate isn’t just another sales analytic—it’s a key metric for evaluating the health of your growing business.
What is good sales growth?
“Good” sales growth isn’t the same for every company. Depending on your KPIs, your size, and the growth of your competition, “good” sales growth can mean very different things. Let’s break down a few of the main factors:
- Company size
Contrary to popular belief, smaller companies can actually experience faster sales growth than larger companies. This is partly because larger organizations plateau and then focus on acquisitions, but it’s also because smaller businesses are more impacted by growth of any kind.
For example, a larger company jumping from $20 million to $21 million in sales sees a five-percent sales growth rate. Meanwhile, a smaller company going from $300,000 to $500,000 sees a 66-percent growth rate. Even though the larger company increased sales by $1 million and the smaller company increased sales by only $200,000, the smaller business experienced higher growth. It’s all about perspective.
Your company doesn’t need to have a higher sales growth rate than every other company—you just need to have a higher one than your direct competition.
For instance, if we look at the first fiscal quarter of 2021, Tesla reported a remarkable sales growth rate of 74 percent, while eBay reported one of 45 percent. That might look disappointing for eBay, but those companies aren’t competing in the same market. When you factor in that Amazon reported a 44 percent sales growth rate, eBay actually came out incredibly strong.
Tesla has little to no impact on eBay’s success, but as a fellow ecommerce site, Amazon does. Even with a difference of only one percent, eBay’s rate reflected larger growth than its direct competitor.
- Individual sales goals and KPIs
There are cases where your sales goals might not even reflect the competition, and that’s okay. If you’ve been experiencing heavy losses in your sales pipeline, for instance, you might be taking time to focus on lead qualification or pipeline advancement for a quarter. While extremely beneficial for your company’s future, that shift is likely going to mean a lower sales growth rate for that particular quarter.
In an ideal situation, however, it doesn’t matter. That focus on pipeline improvement should increase sales down the line.
Organic sales growth
Organic sales growth refers to sales growth that occurs because of a company’s existing resources. Despite the assumption that “organic” = better, that’s not the case in sales. Organic sales growth is good, but it’s not necessarily any more efficient than inorganic sales growth (i.e., acquisitions, mergers, and partnerships).
Depending on the size of your company, inorganic growth may be out of reach financially, so organic sales growth is more appealing. Larger companies carry the budget and the pull to create more external opportunities than smaller companies can. While these opportunities may be more lucrative, if you don’t have the resources to grow externally, it makes sense to focus inward.
Organic sales growth tends to be slower than inorganic growth, but improving it can still lead to significant revenue gains. Organic growth also tends to have a longer-term impact on your company as a whole.
How to calculate sales growth
To determine your sales growth, you’ll need a few basic revenue numbers. You can grab them from annual or quarterly reports, or calculate your revenue using the total revenue formula.
Once you have the revenue for the current time period and the previous time period, you’re ready to calculate your sales growth.
Sales growth formula
The sales growth formula is very simple:
Let’s explore a real-life example:
H&M Clothing saw massive losses during 2020. At the beginning of 2021, the fear remained that they wouldn’t be able to turn those losses around. Let’s see if they did.
H&M 1st quarter sales 2020: $9.75 billion
H&M 1st quarter sales 2021: $10.1 billion
[(10.1 billion – 9.75 billion) ÷ 9.75 billion] x 100 = 3.5%
While this sales growth is technically positive, it falls below the five-percent goal that many larger companies strive for. This means that while H&M is seeing growth and recovery, they might not be seeing it at the rate they expected or desired.
How to calculate sales growth over last year
Using the formula above, you can calculate sales growth for any period of time. That said, sometimes you want to look at year-to-year, not a single time period. For this, we want to calculate the average annual sales growth rate.
The average annual sales growth rate formula is as follows:
Let’s look at H&M again. We don’t have their 2021 earnings yet, and 2020 carried exceptional circumstances, so let’s review 2014 to 2019.
Before we can use the average annual sales growth rate formula, we’ll need to calculate the sales growth rate for each year.
Now that we have the sales growth rates for each year, we can calculate the average annual sales growth rate:
[0.84 + 6.2 + 8.6 +(-16.2) + 4.7] ÷ 5 = 0.82%
Whatever happened in 2018 was catastrophic to the average annual sales growth rate. Despite a series of healthy numbers, 2018 saw a drop for the company that reflected in the five-year growth presentation.
This may not seem like a big deal for a large company reporting mostly positive growth, but it significantly impacts investors and stakeholders. A business reporting 8.4-percent growth in one year looks fantastic, but a five-year average of only 0.82 percent isn’t very appealing.
Sales growth strategies
Now that you know how to calculate sales growth and why it’s important, let’s discuss ways to improve it. Below are five ways to increase your sales growth without reinventing your entire business structure. (For the purposes of this piece, we’re going to focus on improving organic sales growth, but several of these suggestions apply to inorganic growth as well.)
Understand your current sales situation
The first step in any sales improvement plan is to look at your existing practices. If you’re not happy with your current sales growth rate, look at what might be impacting it. When did sales slow? Are your sales reps hitting their KPIs? Is your marketing team aligned with your sales team? Are your gross sales climbing while your net sales are staying level?
Locating potential problems in your pipeline allows you to make specific decisions to improve your sales performance.
Look for expansion closer to home
A common mistake in sales is to branch out to a larger market before fully saturating the market that already exists. You know the demographics of the people who are currently buying your products. Thousands more consumers enter those demographics (age, wage bracket, marital status, etc.) all the time, so it makes no sense to spread yourself too thin when you already have a formula for success.
Plus, using your existing market will decrease customer acquisition costs, which in turn will boost your net sales. Keep targeting the audience that already loves you before revitalizing your marketing efforts to appeal to a wider range of demographics.
Promote additional products
One easy way to increase sales is to offer other products to existing customers. Getting a customer to return for a secondary product is exponentially easier than trying to gain a brand-new customer. Additionally, you can use surveys to ask your current market what types of products or upgrades they might be interested in. You don’t have to get creative in sales when your customers tell you what they want to buy.
Support your staff with training
Providing regular training sessions ensures sales reps are continually learning new sales techniques and expanding their skillset. If you’re looking to change your sales style or offer new products, your reps need to be trained on those things. Just make sure the sessions are useful and relevant—no sales rep wants to sit through training that doesn’t have anything new to offer.
Increase communication in a personal sales market
Sales are personal these days. The impact of social selling and consumer access to company and product information means that you have to do more to stand out and maintain long-term customers.
One of the easiest ways to do this is through personalization. Keep prospect communication casual, and try to form a connection before making a sale. If you’re doing large-scale marketing like email blasts, for example, always address the individual by name.
Improve your sales growth with a powerful CRM
The best way to boost your sales growth is by keeping your sales pipeline active and organized with a state-of-the-art CRM like Zendesk Sell. Our software makes it easy to maximize productivity, enhance pipeline visibility, and improve revenue for your sales team.
Our sales performance dashboard also enables you to track your sales growth in real-time, so you can determine what’s working and what needs shifting—without waiting for the end of a quarter or fiscal year. We’re here to support you in data-driven decision-making, not blind predictions.
Request a demo of Zendesk Sell today to see how it can help you increase your sales growth and keep your strategies fresh.