What is year-over-year growth?
Year-over-year growth, as the name suggests, this metric compares a business’s current period's performance with its performance in the same period last year.
This metric is typically used to compare the revenue growth rate from the previous year to the current year.
How to calculate year-over-year growth?
To calculate year-over-year growth, first determine the reporting period for which you want to calculate your growth, it can be month or quarter based. Now, subtract your ‘previous year's revenue’ from your ‘current year's revenue’ of a particular time frame – which will give you the total change in revenue.
Then, divide this amount by ‘previous year’s total revenue’ and multiply by 100.
Formula for calculating year-over-year growth
Real-life example of year-over-year growth
You run a small e-commerce business and want to calculate your year-over-year growth for the month of March. Let’s assume your revenue in March was $350 last year and the total revenue in the year was $10,000
In the current year, your revenue in March was $500. On putting the figures in formula, your year-over-year growth will be: (500 - 350) / 10,000 x 100 = 1.5%
This means, your current year’s revenue in March increased by 1.5%, compared to last year.
What’s considered a good year-over-year growth? (benchmark)
A good growth rate is considered to be between 2% - 4%. However, The year-over-year growth rate of a company depends on several factors, such as, the industry, economic conditions, stage of the business cycle, etc., so there is no single benchmark for you.
You can calculate the YOY growth rate of your competitors for at least two years and observe yours to decide if your company is heading in the right direction.
Amazon’s YoY growth in the third quarter of 2022 was 14.7%
Ways to increase your year-over-year growth
Increasing your year-over-year growth rate boils down to growing your revenue.
Some ways to achieve this are:
- Increasing selling price: Increasing your average selling price per unit is an obvious way to increase your revenue and ultimately your growth rate. But study your customers before doing so as, they might not be ready for a price increase and you can rather lose your customer base.
- Extending your product line: Extending product lines allows companies to maximize their reach, target a wider market and provide them a chance for higher growth. Read: Why do companies introduce new products?
- Use upselling and cross-selling strategies: Upselling and cross-selling strategies are a great way to increase the average value of a customer transaction while offering them better solutions.