How to calculate growth rate: Definition, formula, and types of growth for a small business
10 min read
October 09, 2024 • Block Advisors
Picture this: you’re a budding entrepreneur, and your business is quickly rising. The excitement of seeing your business’ success is palpable – but is it also measurable? Luckily, a concept called “growth rate” helps quantify your business’ success. Keep reading to learn how to calculate growth rate and use it to assess your company’s health.
What is a company’s growth rate?
Let’s break down the growth rate definition so you can apply it to your own small business. The growth rate is simply a percentage of change of a specific variable within a specific time period. Growth rates can be applied to many parts of your business – customers, new user acquisition, revenue, annual or compound annual growth rates, and market share are just a few of the applications. Rates can be negative, positive, or even zero, depending on whether the size of the variable decreases or increases. Either way, they’re commonly expressed as a percentage.
What is a good growth rate for a company?

A growth rate of 10% or higher per term (month, quarter, or year) is generally considered a good growth rate. Needless to say, growth rates should align with its industry, size, and objectives. Generally, if a growth rate outperforms industry peers, is sustainable, and leads to profitability, it’s considered favorable.
If a business grows faster than its competitors, can maintain the growth, and becomes more profitable, it’s generally seen as a good growth rate.
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How to calculate growth rate: Growth rate formula and examples
While it might sound intimidating to calculate growth rate, don’t stress. The formula to calculate the growth rate across two time periods is simply the ending value divided by the beginning value, subtracted by one.
Growth Rate (%) = (Ending Value ÷ Beginning Value) – 1
For example, if a company’s revenue was $1 million in 2023 and grew to $1.2 million in 2024, its year-over-year (YoY) growth rate is 20%.
Growth Rate = ($1.2 million ÷ $1 million) – 1 = 0.20, or 20%
Break it down by following these steps:
1. Collect your data points before running the calculation, including the current and past values.
2. Divide the beginning value by the ending value
3. Subtract 1 from the value.
4. Arrive at the final growth rate as a percentage.
If calculating growth rates isn’t your idea of a fun time, we’ve got good news. Block Advisors can help with this calculation and other bookkeeping tasks. Our team of experienced tax, bookkeeping, and payroll professionals help small businesses like yours year-round. Learn more about Block Advisors.
Revenue growth percentage examples
You can apply the above concept to many aspects of your business. Here’s an example that walks you through calculating the growth rate for business revenue. It will paint a clearer picture of the formula and steps. Say your small business’ revenue was $200,000 last year. Over the year, it increased to $250,000. Use these two numbers to find the YoY revenue growth rate for your business:
($250,000 – $200,000) / $200,000 X 100 = 25%
If you’re looking for quarter-over-quarter growth, you can arrive at the growth rate in the same fashion as shown above. For example, if your small business’ revenue in Q1 was $20,000 and $25,000 in Q2, the quarterly growth rate is:
($25,000 – $20,000) / $20,000 X 100 = 25%
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Leveraging company growth: Company growth usages
We’ve shown you how to calculate growth rate. Now let’s dig into ways you can use it to inform business decisions. Growth rates have several purposes. Here are some common ways small business owners like yourself may use growth rates:
1. Financial analysis: Determine the performance of a company by analyzing profits, revenue, price-to-earnings ratios, book value, or sales growth rates over time.
2. Market research: Compare growth rates between companies in similar fields to understand the larger competitive landscape.
3. Staffing and operational: Inform future staffing and operational decisions by inspecting your company’s growth rate.
4. Innovation: Use growth rates to analyze the impact of innovation decisions, such as adopting new digital tools or technologies.
5. Investment analysis: If you’re looking to sell or get your small business acquired, prospective investors will assess a business’s growth to make predictions about its future performance. Positive growth rates reflect that your business is primed to access funding and may signal it is a promising investment.
Common terms related to growth rates
Growth rates are often seen as an umbrella. Under them are other related terms. Here’s a rundown of the typical growth rate terms you’ll see:
Internal growth rate (IGR)
IGR is an offshoot of growth rates that measures a specific project or company’s performance. Think of internal growth rates as a company’s innate ability to grow without seeking external financing or acquisitions. Businesses can expand their operations, sales, and profits using their existing resources without borrowing funds or merging with other companies.
Rate of return (RoR)
Another buzzword under the family of growth rates is called “rate of return.” It tells you how much your asset or business grows over time. Think of it as a GPS that indicates the financial standing of a business. Investors use this calculation to determine an after-tax rate of return. It shows a net return after deductions from taxes, inflation, costs, and fees.
Industry growth rates
Industries are like ecosystems, each with its own pace and rhythm. The growth rate of an industry is like its heartbeat, pumping life into businesses and shaping the greater economy. Industry growth rates may indicate how fast an industry is expanding or declining within a certain time frame. Rates can be cyclical – high during economic booms and slow during recessions. Some industries post benchmarks, which serve as a good guide for businesses to assess how they compare to the industry standard rates.
Seasonal growth
For many small businesses, there are natural ebbs and flows tied to the calendar and time of year. Seasonal growth patterns help business owners anticipate and adapt to seasonal shifts. Think about it. You wouldn’t market pool floaties in the dead of winter or sell hockey gear in the heat of August. When you calculate growth rate you should consider how seasonality may play into the trends you find.
Compound Annual Growth Rate (CAGR)
Compound growth is a type of growth rate with a twist. It’s a similar concept to compound interest in the finance world. Compound growth looks at multiple periods of growth rather than just one. It describes the asset growth rate if it grows consistently yearly and profits are reinvested at the end of each year.
Here is the general formula for Compound Annual Growth rate:
Compound Growth Rate = ((Current Value/ Past Value) (1/n) − 1) X 100
“n” = the number of periods
Limitations of growth rates
While growth rates unveil data points over time, they come with caution. Let’s look at two things you should consider as you calculate growth rates for your business.
First, know that a growth rate only considers a net change between two points in time. It does not factor in macroeconomic forces like inflation, price movements, or market volatility. Second, growth rates are only one of many indicators of business health. The perspective growth rates offer can be more useful when placed in a larger context alongside other metrics.
For example, if your business’ earnings grew from $100,000 to $150,000 annually, it shows a 50% growth and $50,000 change. If your competitor only grew 10%, you may feel like it’s time to celebrate! However, once you find out that your competitor brought in $1 million per year last year and $1.1 million this year – an extra $100,000- it puts things in a new light. While your competitor’s growth rate is smaller, they grew their earnings more than your company.
Consider viewing growth rate calculations as one part of your metric ecosystem. Other telling ways you can assess your business wellness include calculating a profit margin, net income, and analyzing the balance sheet. These bookkeeping tools can help you understand your business’ full financial picture and progress toward your definition of success.
If these accounting and bookkeeping concepts, acronyms, and formulas have your head spinning, Block Advisors can help. Our expert tax, bookkeeping, and payroll professionals have the knowledge and skills to help you achieve your small business goals. Learn more about Block Advisors.
How to improve your business’s growth rate
Now that you know how to calculate growth rates, you’re probably interested in understanding what fuels business growth. Many factors can take your business to new heights, including:
1. Innovate to expand:
Expanding your business’ services or products is a great way to grow your business. And if your business is plateauing or slowing in growth, think of ways to pivot your business.
2. Get your staff motivated by growth:
Get your employees and contractors on the same page about the importance of growth. Then, think of ways to incentivize them to help reach growth goals. Long story short, invest in your employees and they will invest in you!
3. Consider hiring people who will help your company grow:
Take inventory of the talent within your small business. Are there any areas lacking a subject matter expert, leader, or change driver? If so, consider filling those positions with a contractor or employee who fits the bill. Their unique skills can be a change agent for growth.
4. Create efficient systems:
Effective operations synchronize strategy, processes, action, and insights. When each element is in place, you position your business to grow. If there’s an opportunity to streamline efficiencies and cut unnecessary costs, do it. This will boost your business’s productivity and can help your bottom line.
5. Reach new customers:
It is important to retain current customers. But it’s just as essential to gain new ones if you want to increase your growth rate. To this end, consider diversifying your marketing or promotional strategies to reach new customers. Ensure you are active in marketing channels your target audience frequents. This may be through online advertising, social media, SMS, or more traditional avenues.
6. Measurement, measurement, measurement:
Measuring growth is essential to understanding your business’ biggest opportunities for improvement. Tracking growth in multiple areas of your business can help you determine what’s working and what’s not. Then, if you iterate on what is working, you could be on a path to more opportunities.
More help with bookkeeping for businesses
Crunching numbers is a valuable way to find the driving forces behind growth. After reading this article, you should know how to calculate growth rates and feel more equipped to determine helpful business insights from your measurement data.
Monitoring growth rates and keeping your business foundation strong is an ongoing activity if you want to maintain the agility needed to grow. If you don’t have the time or brainpower to tackle growth rates or other bookkeeping tasks, let Block Advisors help!
Whether you’re looking for small business or self-employed bookkeeping, our services are designed to meet your needs. View our starter or full-service bookkeeping service plans.
This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice.