What is the revenue growth rate?
The revenue growth rate shows a prediction of the potential revenue growth over a specific period of time. Simpler said: How much your revenue grows week to week, month to month, or year to year.
The Main formula to calculate revenue growth is:
revenue growth rate = revenue this period / revenue prior period
As said before, it’s up to you to choose what period you need. We’ll have a look at some examples later.
First, let’s try to understand why we need to know our revenue growth rate.
Why is revenue forecasting important?
Revenue forecasting is important as it makes your company comparable to others. As you might guess, this is very important to investors. While your business itself might be already in a sound stage, investors want to have a decent return on their investment.
You see, it is not that important that your company is already established and makes high numbers.
If these high numbers are already around the revenue ceiling, because your business model has some critical limiting factors, your potential to grow will suffer.
Investors will prefer a return of approximately 400% on a relatively new startup than having a return of 120% on an established business. That precisely is the reason why we are doing this article, as this might be what you’re missing out on in your financial plan and business plan.
Forecasting earnings in company analysis?
Maybe you have read our ultimate financial plan guide, so this point might sound familiar. One of the most important reasons for becoming better at estimating your company's growth rate is the company analysis in your financial plan. The financial plan is THE most essential element when it comes down to convincing investors of your company's worth, especially in today's unpredictable market conditions. It sounds like it makes sense to get the estimation of your sales growth rate as good as possible, right? That's exactly why we are here to help you understand this crucial metric. Ready to get practical? Read on.
How is revenue growth rate calculated?
Revenue growth rate is calculated by taking the difference between the revenue at the end of a period and the revenue at the beginning of the period, dividing that by the revenue at the beginning of the period, and then multiplying by 100 to get a percentage growth rate.
Sounds easy, right?
But wait a second. There is more. Way more.
As easy as it sounds, this question has depth to it.
To help you with your estimations in the most beneficial way, we will have a look at the most asked questions around the subject of revenue growth.
And as a little bonus: At the end of this section, we will look at some interesting real-life revenue growth rate examples.
#1 – How to predict the company's growth rate
Your advantage here is that you can be astonishingly precise with your estimation by using historical data.
What is historical data?
Glad you asked.
Historical data stands for any information that you could gather in your company’s lifecycle.
A convenient way to look at historical data might be to have a ten thousand foot view of your revenue in given time periods.
If you look at the last 5 to 10 years, at which times does your company have highs and lows? Maybe before, during, and after Christmas?
Or maybe you have a high in the summertime because people like your summer articles the most.
You can use all this information to differentiate in your calculations.
By having somebody who can analyze and optimize your estimation based on your historical data (and optimally other’s historical data from experience), you’re set up to succeed.
Typically, most marketers like to create specific offers tailored to their analysis of historical data.
Got highs before Christmas? Create unique gift offers.
Note: The more data you have, the more proof you have. And investors like evidence.
#2 – How to forecast revenue growth rate for a startup
Let’s now have a look at forecasting revenue growth rates for startups.
It is a bit more complicated, but it still is possible.
What we like to do here is to differentiate between early-stage startups and established startups.
If your small business is a relatively young startup, we recommend estimating your revenue growth rate based on weekly statistics.
Remember our revenue growth formula?
revenue growth rate = revenue this period / revenue previous period
Instead of using months or a number of years, as you would do for established businesses, try using weeks as your reference point.
Compare this week to the previous week. Or the current two weeks to the last two weeks.
You get the point. There is one catch.
Early-stage startups can see extreme exponential growth.
This exponential growth can be quite misleading when it comes to estimating growth revenue from a long-term perspective.
But no worries, you can include that information as well. And investors will love you for that.
If you think your estimated revenue growth rate is too high to be sustainable for the next three years, you can split your estimation into parts.
Have an estimation for the next six months, one for the next year, and one for the next three years.
Doing that will make you gain trust.
Investors, banks, and other institutions will acknowledge that you know how growth works. They will love you for your ability to show how important it is to give the most accurate information possible.
There is a massive difference between having a 180% growth rate for three years and having 180% for the first year, but then dropping down to 120% in the following two years – which you can sustain on average.
Be sure to include that in your estimation.
Examples of revenue growth rate
We searched for hours and hours to find something suitable for you.
And we were successful in doing so!
If you know what to search for, you can find astonishing data on the internet!
Let’s dive right in!
Revenue growth rate by industry
What is considered to be a good revenue growth rate for a company will depend on various factors such as the industry it is in. For our first example, we will have a look at the growth in revenue in French startups.
Remember when we talked about differentiating between early-stage startups and established, mature companies?
In 2018, french startups with revenue from 0 to 5 million euros experienced a revenue growth rate of around 35%.
At the same time, french startups with a revenue of more than 50 million euros experienced a revenue growth rate of around 16%.
Or in other words: The more established startups could not even generate half of the economic growth of the early-stage startups!
Or to put it the other way around: Early-stage startups were able to generate more than twice the revenue growth rate as the already established companies!
That’s excellent information!
Ready for growth?
As you hopefully could see, there is a massive opportunity in the estimation of your revenue growth rate.
To get the most out of it, you need to get a thousand-foot view of all the possible factors and how they align with your business development strategy.
That’s where we can help you.
As experts for business and startup growth strategies with strong experience in award-winning business plans, we can help you get those estimations right and in sync with your business goals.
Ready to grow? Reach out to us here to get a free consultation call.
