YoY growth, or annual growth, is a vital aspect for businesses to flourish. It provides deep insights into the previous and current data. Based on this data, future decision-making takes the spotlight. This is considered a measure of the increase in the value of an investment or asset, or of a particular revenue flow, in a given year. It is usually a report for the investors that shows a stable growth record, if it is so.
How to exactly calculate YoY Growth?
For this, an establishment can use an upfront formula, which is:
YoY= (Current Year Revenue – Previous Year Revenue) ÷ Previous Year Revenue × 100%
This formula allows one to put forth the change as a percentage figure, which makes it clearer at first glance. To give an example:
If your sales figures are at $2,00,000 in 2023, and the amount surged to $2,50,000 in 2024, these numbers fit in the formula as follows:
YoY= (2,50,000 – 2,00,000) ÷ 2,00,000 x 100% = 25%
This depicts that your annual sales figures were up by 25% in a year. This can be considered a significant growth. In simple, everyday terms, if you’re working directly in Excel and have last year’s revenue in cell A1 and this year’s revenue in cell B1, you can calculate the growth with a quick formula. Just subtract the older value from the newer one, divide the difference by last year’s number, and multiply by 100. In Excel, that would look like this: =((B1 – A1) / A1) * 100. Once entered, the spreadsheet will instantly show the percentage change, saving you from doing the math manually and making it easy to update the result whenever the numbers change.
How to integrate Excel’s GROWTH function?
Using Excel’s GROWTH function is a convenient alternative to calculating growth rates by hand. Instead of working everything out manually, this built-in feature helps you project future values based on patterns in your past data.
The function works with a few simple inputs: the values you already have (your known results), the corresponding time periods or categories, the new time periods you want to forecast, and an optional setting that controls whether Excel should assume a fixed starting point.
To get started, organize your data in a clear table. Place your time periods in one column and the related values, such as revenue, in another. Then click on an empty cell and enter the formula =GROWTH (known_y’s, known_x’s, new_x’s, [const]). Finally, swap in the correct cell ranges from your spreadsheet. Excel will handle the calculations for you, making it easier to explore future trends with just a few clicks.
Why is it Crucial to track YoY Growth for Startups?
By focusing on the YoY analysis, startups can gain immense benefits that provide a clearer vision of the future. Here are some pointers for the same:
- Ideal comparisons:
The annual growth calculation provides an ideal basis for comparison. An organization can benchmark its own YoY growth rate with a detailed comparison with the competitors ot the industry on average.
- Conscious goals for the future:
The past trends of yearly growth calculation give us useful insights. More achievable or practical goals can be crafted for the future. If a company’s growth rate has been by 20 to 25% since the past 3 years, one can confidently rely on this data to predict the upcoming year’s sales performance. Budgeting, strategy, marketing agendas, etc., several aspects depend on it afterall.
- Maintains investor confidence:
Companies that are on the lookout for investors can pitch consistent & positive annual growth calculations while asking for an investment. This proves to be a direct & impactful aspect for the investor to decide whether or not to go further with the investment decision. It depicts the successful trajectory, highlighting a consistent & reliable angle.
- Seasonal issue is resolved:
In the annual growth calculation, this is one of the most crucial aspects. Every industry has seasonal patterns. For instance, an ice cream brand will have sky-high sales in the summer season, whereas a vacation resort will see higher revenue flowing in the winter season. These very imbalanced sales figures give vague results. YoY calculation brings order & neutralizes the effects.
Conclusion
To conclude, calculating year-over-year (YoY) growth is especially important for startups because it tells a clear story of progress over time. Startups often experience ups and downs, and a yearly growth rate helps smooth out short-term fluctuations to show whether the business is truly moving in the right direction. It allows founders to track revenue, users, or key metrics in a way that investors, partners, and teams can easily understand. More importantly, YoY growth encourages startups to think long term rather than reacting to month-to-month changes.
