3 Easy Ways To Calculate And Track Revenue Growth

You don’t have to do complicated gymnastics or pull in your favorite financial tools to figure out where your business is — in fact, you may be able to find a ton of useful information in a very simple spreadsheet. Tracking three basic metrics can help your business grow and help you identify problems if they arise. 

Without accessing your company’s financial reports, you can use the revenue growth calculation methods to identify what’s happening in your business.

What Is Revenue Growth?

Revenue growth measures the sales or sales volume that a company generates over time, and we sometimes refer to it as the top line. Revenue growth is an important metric for businesses because it represents their ability to survive and scale. Growing businesses are more likely to attract investors, hire new employees, and deliver consistent profits.

3 Simple Methods To Calculate Revenue Growth

Calculating revenue growth is one of the easiest ways to show your ROI. While percentage growth is a simple way to measure growth, incremental revenue shows the impact of specific products or services. The latter strategy helps you identify which products are driving the most sales and traffic.

1.  Incremental Revenue

Revenue growth can be measured as a percentage increase or as incremental revenue. Percentage growth shows relative change, while incremental revenue shows the absolute increase. Let’s say your business brought in $100,000 last year. If you sell $110,000 next year, your revenue is up 10 percent ($10,000 divided by $100,000). Incremental revenue takes things a step further by calculating how much of an increase was due to just one product or service sold.

2. Average Revenue Per User

Sometimes referred to as ARPU, average revenue per user is a measurement of how much money you bring in per customer. Calculate it by dividing your monthly recurring revenues (MRR) by your number of active users. For example, if you have 100 active users who make you $10,000 a month, your ARPU is $100. ARPU is calculated as total revenue divided by active users, providing a straightforward way to compare performance across periods or products. So it’s just an easy way to compare companies with different pricing schemes.

3. LTV/CAC Ratio

The LTV/CAC ratio compares the lifetime value of a customer to the cost of acquiring them. A ratio above 1 indicates that each customer generates more revenue than it costs to acquire them, while a ratio below 1 suggests your marketing may be too expensive or inefficient. 

Conversely, if it’s less than $1 or $2 per customer, then you know your marketing strategy must be good since it brings in more revenue than what you paid for each lead.

Following the three methods above should give you a good idea of calculating your business’s revenue growth. But if you’re ever curious about the health of your business and don’t want to revert to a 10th grader to find it, consider tracking your revenue growth rate by using quality content management systems (CMS) like SharpSpring and ParaForm.

Conclusion

It is very important to understand revenue growth to measure the success and financial health of any business. By tracking key metrics such as incremental revenue, average revenue per user (ARPU), and the LTV/CAC ratio, business owners can gain valuable insights into their performance and growth potential. These simple calculations help business owners to identify and improve uncovered areas and provide better decision-making. Regularly monitoring revenue growth can help businesses stay competitive, increase profitability, and achieve long-term success.