The Sales Growth Ratio equation can be expanded, and usually is in its more common form. The expanded equation is:
Sales Growth = 100 * ((Net Sales This Year – Net Sales Last Year) / Net Sales Last Year)
So what have we done with the equation? First of all we multiply by 100. This is because this is usually expressed as a percentage. So when we doubled sales earlier, we actually grew by 200%.
The second thing we have done to this equation is we have isolated the growth. 200% includes both the sales from this year and the sales from last year so it does not accurately represent the growth. All we want is the growth part of the pie so we have to subtract 100% from the result in order to show just the growth part of the pie.
This is easy with the 200% because the result is 100% so we can say we had 100% growth is sales this year.
The second example is a little more tricky. When you subtract 100% from 50%, you end up with -50%.
So what does this mean? It simply means that there was a 50% decrease in sales this year. A negative sign simply means that the sales this year are lower than the sales the previous year.
In the last post on this ratio, we will discuss the reason it is important and how to apply it to your business. Remember…
…Your business THRIVES on a solid FOUNDATION!!!