How to calculate sales growth

Take sales for the current period, subtract sales for the earlier period, and divide the difference by the earlier period's sales. A positive result means sales grew; a negative one means they fell. The result is a decimal, which many reports show as a percentage.

The earlier period's sales must be above zero. A business in its first period of trading, or one that had no sales in the comparison period, has nothing to measure growth against yet.

• Same length. A month with more trading days than the one it is compared with can show growth that comes only from the extra days.
• Same season. For a business with busy and quiet times, compare a month or quarter with the same one a year earlier rather than with the one just before it.
• Same accounting basis. Under cash accounting, business.gov.au notes, a sale is recorded once the customer pays; under accrual accounting, when it happens. Switching methods shifts sales between periods.
• Each period's own figures. Use the sales for each period's dates, not a year-to-date balance against a single month.

business.gov.au's profit and loss guidance suggests building sales forecasts from earlier years' results and the seasonal patterns in them. The same habit makes growth figures easier to trust.

Sales means income from selling your goods or services, after refunds. Before comparing, take out anything that isn't trading, such as interest, grants or money from selling equipment. Then look for items that make the comparison uneven, like a single large order that won't repeat, a price change partway through, or a new product line that didn't exist in the earlier period. Keep them in the total, but work out growth with and without them.

The headline figure looks strong, but most of it came from a single order. Without it, growth from the regular business was modest. Both numbers are true; the second is the one to plan around.

Use both, for different jobs. Month-on-month growth compares a month with the one just before it, so it shows a change of direction quickly, but it also picks up every seasonal rise and fall. Year-on-year growth compares a month with the same month a year earlier, which takes most of the season out of the figure.

Read month on month, September looks like a boom and November like a slump. Both are mostly spring, and last year's figures show the same pattern. Read year on year, growth eased from 0.05 to 0.02 through September and October, then picked up again in November. That slowdown is the signal worth following up, and the month-on-month figures hide it.

To compare the year so far with last year, add up this financial year's months to date, take away the total for the same months a year earlier, and divide the difference by that earlier total. Setting part of this year against the whole of last year makes the business look smaller than it is.

The same month last year still carries calendar effects. Easter falls in March in some years and April in others, and a month can hold one more weekend than it did a year earlier. Where that matters, compare the two months together, or count trading days alongside sales.

A one-off sale distorts growth twice. It lifts growth in the period it lands in, and a year later it makes that same period's year-on-year figure look weak, because the base it's measured against was unusually high. Flag one-off sales when you record them, so both comparisons can be worked out with and without them.

Sales can rise because you sold more, because you charged more, or both. If you track units sold, split the growth:

Here sales grew only because prices rose, while fewer units sold. That can be a sound result, or an early sign that customers are drifting away. business.gov.au suggests checking whether you can raise prices without losing business, and notes that the consumer price index (CPI) can help you follow price changes for some products and services.

Organic growth is the growth that comes from the business you already had, leaving out sales you gained by buying another business or a customer list. Like-for-like growth, also called comparable growth, narrows it further to the shops, sites or product lines that traded through both whole periods, so a new location can't flatter the figure.

Both figures are true, and they answer different questions. The total says how much bigger the business has become; the like-for-like figure says whether the original shop is still winning more trade. The second shop has no earlier year to compare with, so it joins the like-for-like figure once it has traded through both of the periods being compared. A shop that closed during the year comes out of both periods' like-for-like figures for the same reason, and a new product line can be handled the same way.

Often, yes. Sales and revenue can mean the same thing, and business.gov.au's glossary treats revenue as what a business earns before its expenses come out, also known as turnover.

The two part ways when a report's income or revenue total includes amounts that don't come from customers, such as interest, a grant or an insurance payout. Growth in that total can swing for reasons that have nothing to do with trading, so work sales growth from the sales lines alone and note any other change on its own line.

Volume growth is a third measure again: the change in units sold, which the price and volume split above separates from the effect of price rises.

To sum up growth across several years in one figure, find the steady yearly growth that would take the first year's sales to the last year's. Divide the last year's sales by the first year's, raise the result to the power of 1 divided by the number of years between them, then take away 1. This is often called the compound annual growth rate. The first year's sales must be above zero.

The working for the compounded figure: 393,120.00 divided by 300,000.00 is 1.3104. Four years separate year 1 and year 5, so raise 1.3104 to the power of 0.25, which gives about 1.07, and take away 1 to get 0.07. As a check, growing 300,000.00 by 0.07 a year for four years gives roughly 393,000.00.

The simple average comes out higher because a fall needs a bigger rise to recover from it. After the fall in year 3, the rise of 0.20 in year 4 still left sales below year 2. The compounded figure links the first and last years correctly, while the yearly figures show the path between them, so report both.

Count the gaps between years, not the years themselves: five years of figures give four years of growth. Using 5 in place of 4 here would understate the average.

business.gov.au describes sales growth as vital to a business surviving and growing. But growth bought with deep discounts can lift sales while gross profit falls, and growth on credit terms can lift sales while the bank balance falls, because stock has to be bought and customers haven't paid yet. Check gross profit and cash for the same periods before reading growth as good news.

If sales are falling, business.gov.au lists a drop in sales and the loss of major customers among the changes in customer behaviour to watch for, and suggests asking customers for feedback, by survey, phone or email.

Work out growth each month against the same month a year earlier, and over a rolling year, which smooths out one-off swings. business.gov.au suggests going through your main financial documents regularly, with a fuller look at the business's financial health at least annually, and watching for trends such as falling sales.

List the months down the rows with last year's and this year's sales side by side, then add one column for growth on the same month last year and another for growth on the month before. Each growth formula divides the change by the earlier figure, so build in a check that leaves the cell blank when that earlier figure is zero or missing, as it will be for a new line or the first month of trading.

For growth across several years, a spreadsheet's power function does the compounding step set out in the section above.

Three formula slips are easy to make, and each has a quick check:

• Dividing by the wrong period. Sales that rise from 80,000.00 to 100,000.00 have grown by 0.25, because the change is divided by the earlier figure; dividing by the later one gives 0.20. Check that every formula points at the earlier column.
• Adding up monthly growth figures to get a yearly one. Twelve monthly figures added together don't give the change in the year's total sales. Work the yearly figure from the yearly totals instead.
• Copying a formula down past the last month with figures in it. The empty rows then show a fall of 1.00, a drop to nothing, which can pull a chart or an average out of shape. Leave rows with no sales yet blank.

Add a column for the growth your budget or sales forecast assumed, so each month's actual growth sits beside the plan. business.gov.au's budgeting guide suggests regularly comparing actual income and costs with the budget, and looking through the budget for seasonal patterns that can help with decisions such as when to change prices.

If your accounting software's profit and loss report can add a column for the same period last year, its sales line gives you both figures at once. Check that both periods cover the same dates and use the same accounting method before you divide one by the other.