January 25, 2024
5 Mins
Sales growth is a metric used to measure a company's revenue growth in a certain period. It is the most fundamental parameter to judge a company's long-term health and performance. It won't be easy to overstate its importance because a company's sales growth determines and affects various important factors of the business. All the key business and corporate strategies are made keeping this metric in mind. The perception of markets, investors, and stakeholders is also influenced by the company's historical and expected sales growth.
This metric is directly correlated to the profitability and sustainability of the business. Therefore, if the company experiences sluggish sales growth, it is a cause for concern, as there is a considerable risk of being overtaken by a competitor. During such a situation, the sales team and business development executives face substantial pressure, as the onus to rectify the issue of lower revenue rests on their shoulders. On the contrary, when the sales growth is high, it is a cause for celebration, as the company will clock higher revenues, while the team will receive higher compensation in the form of commissions.
Such is the importance of sales growth for the sales department and a company in general. In this article, we will try to understand the importance of sales growth, how to measure it, and what the standard practices are that a company can adopt to boost its revenues.
Sales growth is a metric which is represented in terms of percentage. It measures the periodic change in sales of a company. Sales growth rate can be calculated on a monthly, quarterly and annual basis. It all depends on the reason why this metric is being calculated. For example, if a company is formulating a long-term corporate strategy, for a period of 5 or 10 years, they prefer looking at a year-on-year (YoY) sales growth rate. Similarly, if the company is formulating an annual business strategy, it would analyze the monthly and quarterly growth rates.
The calculation for sales growth rate is relatively straightforward and is similar to calculating normal percentages. Below is the formula for calculating your company's sales growth.
Sales Growth Rate = ((Ending Sales - Beginning Sales) / Beginning Sales) * 100
In the above formula, you can calculate the sales growth rate for different periods by taking the ending and beginning sales figures of a specific period. Let's look at an example to understand the calculations.
Quarter-1 Sales: ₹60,00,000, Quarter-2 Sales: ₹75,00,000
Rate = ((₹75,00,000 - ₹60,00,000) / ₹60,00,000) * 100
Rate = (₹15,00,000 / ₹60,00,000) * 100
Rate = 0.25 * 100
Sales Growth Rate = 25%
To make your calculations quick and hassle-free, we have designed an online sales growth calculator. You can use this to compute the periodic growth of your company, which can help you track your company's historical progress.
What is Lead Management? Definition, Tools & Best Practices
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In today's market, competition has increased by several folds; thus, achieving double-digit growth has become quite the challenge, especially for companies who are using traditional methods for achieving sales targets. Let's take a look at various strategies that businesses use to achieve sales growth.
Strategic partnerships with clients can result in recurring business. These businesses are referred to as legacy clients or, in simple words - repeat customers. Legacy clients reduce a company's overall cost of acquisition and result in a regular cash flow.
To form meaningful long-term partnerships, businesses have to deliver quality products and services along with customization and personal touch. We at SquadStack have built strategic partnerships with major brands such as Delhivery, Upstox and Byju's. We were able to achieve this by providing quality, flexibility and customization to our clients. You can read our customer story blogs to understand precisely how Squadstack helped their clients achieve sales growth.
The sales growth of a company depends on the efficiency of its marketing campaigns. Thus, it becomes essential to invest in a marketing strategy which helps in brand recognition, leads cultivation, and customer engagement. An efficient marketing campaign means utilizing both traditional and digital marketing channels to connect with a more diverse audience effectively.
Companies can choose to outsource some of their marketing activities, such as customer engagement, cold callings, and product promotion, to dedicated call center companies. At SquadStack, we offer various telemarketing services that can help boost sales and acquire new customers. For example, we recently partnered up with Upstox - a major stock broking house in India, to help them increase their account activation rate by almost 40%! We achieve such results by leveraging our trained workforce, using advanced AI-driven data analytics and CRM tools and strict quality monitoring processes.
A product can witness a massive jump in sales if it is priced correctly. Thus, pricing strategy becomes an essential variable in the equation of sales growth. Lower pricing can increase a company's sales. However, it can also hurt the margins. Thus, it is crucial to first determine the price elasticity of the product by conducting direct market research and then collaborating with the production team to figure out the optimal price. Such a process can increase sales in a higher proportion than decrease the margin, thus increasing the overall profit.
Moving away from business strategy, the product strategy is an integral part of sales growth. Because without a good product, the sales team's effort will be of no good use. Product strategy involves market research to see the product-market fit, focusing on the R&D of the product, and finally, the product placement, which includes features such as packaging, branding, etc.
Lastly, the sales team is responsible for acquiring customers, maintaining relationships and selling the product. It is essential for companies to Invest in continuous training and development of the sales team. Equip them with the skills and knowledge needed to navigate the evolving sales landscape and build lasting customer relationships.
However, if a company is outsourcing some of their marketing activities, it becomes difficult to track the training and development of the agents representing its brand. Thus, in SquadStack, all our agents are trained through various system-driven practices so our clients don't have to do the same. We train all our agents in partnership with our clients and provide them with mentoring from industry veterans so they can help our clients achieve their sales growth targets.
Now, let's understand why a company should take its sales growth metric seriously. It is the most critical performance metric for any business. Sales growth serves as a key indicator of a company's health and success. Here are the various factors of a company which are affected by the sales growth in that period -
The most obvious interpretation of sales growth is the increase in revenue. A company's ability to consistently grow its sales directly contributes to its financial strength and sustainability.
Sales growth can be used to judge the profitability of a company. For example, if the sales of a company increased by 10% in a year while the operating margins improved from 12% to 14%, it means the company was able to utilize economies of scale, reduce its selling costs and increase the efficiency of operations.
Supplier, Investor, Markets and Employees - The sales growth of a company affects the perception of various stakeholders. The suppliers look at the increase in sales before extending a line of credit. Investors use this metric to determine the growth rate of the company's share price, and employees look at this metric for their job security.
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Regional, Corporate, SBU Strategy - A company's long-term corporate strategy depends on its sales growth rate. A lower growth rate might prompt management to rethink the product or expand in newer markets, while a higher growth rate would encourage the company to opt for a concentration strategy. This metric also helps companies focus on specific regions where the growth rate is lower when compared to other localities.
The satisfactory sales growth rate varies depending on factors such as industry, company size, stage of business development, and economic conditions. What might be considered a satisfactory sales growth rate for one business could be insufficient for another.
For example, the sales growth of auto ancillary, renewable, FMCG and banking sectors in India in FY 2023 seems to be well in double digits. On the other hand, a low single-digit sales growth in the IT service sector appears to be good enough for the industry.
So, to understand what constitutes a satisfactory growth rate, a company has to compare its metric with the industry peers and assess the business, political and economic factors.
"According to the Economic Times, the sales growth of the ET 500 has more than doubled over the past decade, reflecting the expansion in economic activities over the span. Revenue grew at a 10-year compounded annual growth rate of 8.3% to Rs 95.8 lakh crore in FY21."
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Sales growth represents the percentage change in a company's revenue in a specific timeframe. This metric is one of the most important Key Performance Indicators (KPI), which is used to measure a company's sales over the years and judge the overall health of the business.
Sales growth is calculated using the following formula - Sales Growth Rate = ((Ending Sales - Beginning Sales) / Beginning Sales) * 100 This formula compares the current period's sales to the sales in the previous period and expresses the change as a percentage.
Sales growth is directly related to a company's stock price. Usually, an increase in sales growth can lead to an increase in the company's share price, as investors view it as a sign of the company's financial health and potential for future earnings.
Yes, the profitability of a company is closely correlated to its sales growth. Even though high sales growth can contribute to an increase in profitability, it's important for the company to manage costs effectively.
The satisfactory sales growth rate varies depending on factors such as industry, company size, stage of business development, and economic conditions. What might be considered a satisfactory sales growth rate for one business could be insufficient for another.
