How to Calculate Year-Over-Year Growth

How to Calculate Year-Over-Year Growth

What Is Year-Over-Year Growth?

Year-over-year growth is a measurement for comparing a company's success over the course of twelve months to the same time period over the previous twelve months.

For example, if a company wanted to check its first quarter growth in 2021, it would examine the first quarter data for 2021 compared to the same time period in 2020 and previous years.

This form of analysis is often used to examine financial performance.

This form of data analysis is very useful in identifying long-term trends and influencing future business decisions based on historical data.

Who Would Use This Analysis?

This form of analysis has several applications for a wide range of businesses, as well as economic uses, all over the world.

Predominantly, year-on-year analysis is used by businesses to monitor the progress of their companies and financial analysts while looking for trends and historical data regarding stock markets.

This information may also help investors decide whether or not investing in a firm would be profitable to them.

Year-over-year data aids in identifying long-term growth and forecasting potential future trends.

Why Use Year-Over-Year Growth?

All business owners will want to be reassured that their company is growing.

One of the best ways to do this is to compare current data with that of the previous years.

It is also important for others to be able to see the growth of a company when it comes to applying for business loans, purchasing new premises or encouraging investment.

Benefits to Using Year-over-Year Growth Data

Accuracy

Comparing figures over the long term provides more accurate insight into trends and performance.

Easy to Track

While some forms of analysis will involve complex calculations which require specialists to interpret, year-on-year data can be calculated quickly and easily using a spreadsheet.

Easier to Spot Improvements Which Need to Be Made

By examining how different areas of a business have performed from one year to the next, areas that are not performing as anticipated or which might need extra attention can be identified.

Potential Negatives of Using Year on Year Growth

While examining historical data can provide analysts with a good idea of how well a firm has performed in the past and how well it is now performing in comparison to past data, it is not without risk.

Looking at data this way doesn't factor in outside influences, such as economic issues. It is also unable to predict whether these issues may happen.

This can make predicting future trends more difficult as the data can only provide information about the past and current situation.

What Can It Tell You About Your Company?

There are many ways of looking at year over year data.

It doesn't have to be just about finances. Growth can be shown in a wide variety of formats.

For a social media manager, growth would be the number of followers and engagement rates.

For a blog or content writer, growth could be shown as website traffic.

For a car salesman, growth could be shown as the number of vehicles sold or the value of those vehicles.

Of course, for many businesses, growth will also mean an increase in revenue and a higher number of employees.

Revenue

In an ideal world, companies will continually make more money from one year to the next. In reality, this sometimes doesn't happen.

By looking at year over year data for revenue, areas of a business providing the most income can be identified, and also which areas may be struggling.

This can help when brainstorming ideas for future growth and development.

Website Traffic

In the modern world, companies rely on websites and social media to expand their reach and engage potential customers.

It is vital for a website to perform well and translate hits into leads.

By comparing the performance and acquisition of a website from one year to the next, you can easily see whether it is performing well.

If there are issues converting website visitors into customers, then the information gained from year-over-year data might help you to create a strategy to combat this.

Employment

By looking at employment growth, you can not only see how many employees a company has compared to previous years but also other factors, such as how much they are paid.

It is important to look at employee data as this can show areas that might need improvement.

For example, if your data shows that employees have left and you haven't made a decision to reduce staffing numbers, then this would indicate that there are issues with staff morale and satisfaction which need to be addressed.

Cost of Goods Sold

It is normal for costs to increase from one year to the next due to inflation, production costs and other market factors; although, a company should always do its best to keep prices as stable as possible.

By comparing the cost of goods sold from one year to the next, companies can identify which types of goods sell best, how much their products are bringing in revenue and whether specific lines are struggling.

This can help to direct future pricing and product decisions.

How to Calculate Year-Over-Year Growth
How to Calculate Year-Over-Year Growth

Customers

It is important to understand how many customers a company has within a year, whether these are new or returning customers and how much they are spending.

For a company to do well, it needs a combination of regular custom and continued new growth.

By examining how many customers a company has had from one year to the next, it can help to spot trends pertaining to where they have come from and how much they are spending.

If revenue figures are increasing, but the number of individual customers has decreased, this is unsustainable in the long term.

Strategies will need to be put in place to attract new customers while still engaging the returning ones.

Expenses

Every company will have expenses. These will often include the cost of facilities, shipping, employee wages and production costs.

It is normal for some of these costs to increase from one year to the next; however, it's important to keep a close eye on them to make sure that the company isn't spending more than it can afford in a specific area.

By examining expenses in general as well as in defined areas, companies can keep tabs on what they are spending and make adjustments when required.

This could involve finding cheaper premises to work from or changing suppliers in order to cut costs on products.

How to Calculate Year on Year Growth

Decide What You Would Like to Compare

The first task is to decide what it is that you want to look at the growth of. This could be anything relating to your business.

Examples would be: number of customers, revenue and cost of production.

Decide the Exact Time Period You Are Comparing

It is vital to compare the same time period from one year to the next. This gives an accurate view of performance.

You can compare a month, a quarter or even an entire year against the same time periods in previous years.

Use the Formula to Give a Figure of Growth

To calculate the growth percentage, you need to do a simple calculation:

This year's figure MINUS last years figure, DIVIDED BY last year's figure, MULTIPLIED BY 100.

Figure of Growth

When calculating the figure of growth, you will be able to tell as soon as you deduct this year's figure from last year's figure whether you have had a gain or a loss.

If it is a minus number, then it will be a loss.

The final figure makes this even easier to understand by showing the amount of loss or gain as a percentage.

Example:

You need to know whether your social media presence has improved over the last year to decide on a new marketing strategy for your company. To do this, you want to look at how much interaction there has been in 2021 compared to 2021.

In 2020, there were 56,293 interactions on your social media posts;

In 2021, there were 54,126 interactions on your social media posts.

To calculate the percentage growth:

56,293 – 54,126 = 2,167

This figure is then divided by the figure for 2020 = 0.04

Multiply by 100 for a percentage = 4%

This shows that there has been a 4% increase in social media interactions over the twelve-month period.

Final Thoughts

Whether you are a small business owner, an investor or an analyst, there are many reasons why year on year data would be useful.

When considering using this form of data analysis, it is important to ensure that the time periods considered are relative to one another.

If you want to look at how well a company performs in the summer months over a period of many years, then there is no point in comparing the summer data from one year with winter data from others.

Once you understand how to do the calculations, the process of looking at year-over-year data is simple and can be used for any purpose.


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