Ever wonder how your business is really doing? Sure, you can track month-to-month sales, but that can be a bumpy ride. Enter the magic of year-over-year growth (YOY), a metric that cuts through the noise and reveals the long-term health of your company.
What is YOY growth?
YOY growth measures how a specific business metric (sales, website traffic, social media followers) compares to the same time period in the previous year. It’s like a business report card, showing you if you’re growing, shrinking, or staying steady.
Why is YOY Growth Important?
Here’s why YOY should be a staple in your financial toolkit:
- Big picture view: Month-to-month fluctuations can be misleading. YOY smooths out seasonal trends, giving you a clearer picture of your overall progress.
- Tracks progress: Did you launch a new marketing campaign last June? YOY growth in June 2024 will tell you if it paid off.
- Identifies trends: YOY growth over several years can reveal upward or downward trends, allowing you to make strategic adjustments.
How to Calculate YOY Growth?
The YOY growth formula is pretty straightforward:
YOY Growth = ((Current Year Value – Last Year Value) / Last Year Value) x 100
Let’s say your company’s revenue in June 2023 was $10,000 and in June 2024 it was $12,000.
Here’s how to find your YOY growth:
YOY Growth = ((12,000 – 10,000) / 10,000) x 100 = 20%
Congratulations, your business grew by 20% year-over-year!
Beyond the Numbers: Using YOY for Action
YOY growth is just the beginning. Once you have your numbers, use them to:
- Set goals: Knowing your historical growth rate helps you set realistic goals for the future.
- Benchmark against competitors: See how your YOY growth stacks up against industry averages.
- Identify areas for improvement: Is your year-over-year growth lagging in a specific area? Dig deeper to find the cause and develop solutions.
- YOY growth is a powerful tool for any business owner. By understanding your year-over-year performance, you can make data-driven decisions that propel your company toward long-term success.