Company growth rate: what is it, why it’s useful & how to calculate it

Company growth rate formula 

As an investor, business owner, or manager, it’s crucial you learn how to calculate the growth rate of a company. The basic company growth rate formula is easy to understand and apply. It’s the difference between the current period value and the previous period value divided by the previous period value multiplied by 100%. 

For example, to calculate the revenue growth rate: 

Revenue growth rate = (Current period revenue – Previous period revenue) / Previous period revenue x 100%

You can apply the company growth rate formula to any metric of your choosing. You need to have the current and previous values for the period in question. Substitute the figures in the formula, calculate, and you have your company growth rate. But the figures need to be carefully evaluated with several things in mind to get the right conclusions out of them.

For instance, if you do not factor churn rate into the formula, the results may be deceiving. Consider the following example. You may see a constant growth rate of 10% over several months, which is good. But where is the growth coming from? Is it from new or old customers? Because if you’re getting new customers every month, shouldn’t your business revenue growth rate be increasing instead of remaining constant? You may find you’re actually losing customers while gaining new ones who are responsible for maintaining the growth at 10%. Ultimately, this strong growth rate hides a high churn rate that may lead your business to stagnation if not checked. 

Also, growth rate during short months and certain seasons may be deceptive depending on your business. Some months may be shorter due to holidays. The rate may be higher in the long months as there is more time to generate revenue. Hence, it’s essential to understand the factors affecting the growth in your business so you’re in a position to put your company growth rates into perspective.