Home » How to calculate the year-on-year growth rate in 2022: step by step guide

How to calculate the year-on-year growth rate in 2022: step by step guide

by Adnan

How do I calculate the year-on-year growth rate?

Businesses tend to track a lot of data and lose a big picture in a small picture. For example, if you look at a monthly indicator, you’re only looking at one month’s worth of data. It may be a good thing that sales have increased by 30%, but even if we only take up this number, we cannot see the overall picture of our performance. Single-month data is valuable, but it can be misleading if not the right context.

So how do you measure success over a longer time frame? The answer is “growth year-on-year.” By comparing monthly numbers with larger samples or comparable periods, you can measure more authentic performance by eliminating potential data distortions. This article explains how to calculate the year-on-year growth rate. First, we will establish a clearer idea of what it means.

What is the year-on-year growth rate?

Year-over-year growth is a key performance indicator that compares the Growth of a period (usually one month) to a 12-month-old comparable period (the name comes from this period). Unlike a single monthly indicator, YOY provides a performance image that excludes seasonal effects, monthly fluctuations, and other factors. It gives you a clearer picture of real success and challenges over time. Of course, this is a key indicator of retail analysis.

  • The first major benefit of same-month Growth year-on-year is the elimination of seasonality from growth indicators. Most retailers see a surge in sales during the holiday season. It can be a false indicator of significant growth in a single month. However, such surging numbers do not truly represent long-term Growth as the holiday season ends and returns to normal levels.

 

  • By comparing similar periods, you can measure your company’s Growth more accurately. For example, a 40% increase in monthly sales in November may seem significant. But when compared to the 45% of the year-ago figure, this figure means a moderate slowdown, not a rapid growth. If there is no reference or historical background of the same month of the previous year, we will take what can be obtained from the latest data. It’s not a good way to encourage long-term decision-making and long-term Growth.

 

  • But I’m not saying the same month-on-year ratio is the whole analysis. Focusing on a period of 12 months, you can see it with too wide a view. By combining a long-term perspective with monthly and quarterly analyses, you can analyze different aspects of annual Growth and see your organization’s performance in different ways.

In addition, the annual growth rate is not limited to revenue. You can measure countless growth aspects, including conversions, average sales, and other revenue-related but more-than-revenue metrics.

Method of Calculating Year-on-Year Equivocal Growth

Now that I understand why YOY growth is effective, I have reference material to evaluate the calculation of YOY growth. Let’s dig into how to calculate in detail. First, gather the necessary data. Collects monthly data for the period covered and the same information for the period recorded 12 months before.

 

Once you have all the ingredients, you can do it easily in three steps:

 

The growth rate for the current month is subtracted from the growth rate 12 months ago. If the difference is positive, the organization has grown, and if it is negative, it indicates a loss.

Then divide the difference by the total number of previous years. It will give you a 12-month growth rate.

Multiply this by 100 to convert the growth rate to a percentage.

Let’s explain it using an actual example. Imagine that your monthly revenue was $1,000 in January 2018 and $950 in January 2017.

Starting with the subtraction, the year-on-year difference is 50 dollars (1,000 dollars – 950 dollars).

If you divide $50 by $950, the growth rate is 0.05.

If this is multiplied by 100, the final growth rate will be 5%. That’s easy.

 

 

 

 

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