When we talk about sales growth, we are looking at the increase in revenue in a period. For example, in 2021 you generated $20 million dollars. In 2022, you generated $30 million dollars. Your company grew by 50 percent in one year, a fine accomplishment. But there are other ways to measure sales growth. No ways of measuring sales growth are exclusive. Each of the following metrics provides a different view of growth, letting you glean different insights.
Growth of Revenue in a Period
The standard measure for sales growth is revenue, the easiest and most employed metric. To measure your growth, you add up all your individual sales in a period. If the revenue is higher than in the prior period, you have revenue growth. By dividing the current period’s revenue by the prior period's, you can calculate your growth rate.
When someone asks about sales growth, they want to know your current revenue and the rate at which you are growing. If that rate is lower than it needs to be, it could be because sales is broken.
Growth of Market Share
Those with ambitions of dominating a market will look at sales growth through the lens of market share. To measure growth in this category, you calculate the increase of the total market share. A company with an 11 percent market share in the prior year will want to see that number rise.
This is a tougher game to play because requires size and scale. If you sell to very large clients, you'll find many of them measure sales growth as taking a larger piece of the pie.
Growth of Profitability
You may have heard the saying revenue is vanity; profit is sanity. Different companies have different objectives at different times. Often, achieving sales goals requires increasing profitability, so this is another way to measure growth. There are several reasons a company might look at profitability, but the most compelling is that they are not capturing enough of the value they deliver to their clients. This can sometimes happen when a company sells under market to acquire a foothold in an industry. Once established, the company pivots to profitable sales.
Growth of Average Client Size
If you are an entrepreneurial company, one of the most important ways to measure your growth is to look at your average client size. I know this well. When I was promoted to vice president of sales, I noticed how low our average sales were, but when I did the math on how many clients my team would need to reach our goals, I found it would be impossible. We didn’t need more clients, we needed clients who spent more.
Instead of focusing on winning any client, I targeted clients that spent more than a million dollars yearly. I grew the company 2.6 times by increasing the average client size. This metric also tells you how good you are as a sales organization.
Growth of Revenue by Offering
It's not uncommon for companies with more than one offering to measure the growth of each product or service they sell. It's a way to keep score of how each product manager and their team are doing when it comes to measuring sales growth. For example, if you watch CNBC in the morning, you will hear analysts sharing the number of iPhones sold in a period. You will also hear the number of first-time iPhone buyers. This provides a view of demand and also helps investors project their future earnings.
Growth of Units Sold
A second way of measuring the sales of a product or a service is the growth of units sold. It's a simple way to count the increase of sales in a period. Imagine a salesperson who sells beer to convenience stores. His clipboard will include all his orders from a single store. If the store orders more from him than they did in the prior period, the salesperson has grown sales.
There are still many companies that measure unit sales, like the sketchy pest-control salespeople who ride up to my front door on hoverboards. They offer a steep discount to sell a recurring service. Every unit sold helps improve their sales growth. The more every salesperson increases orders, the greater the organization’s growth.
Growth of Contribution
Sophisticated companies with a serious financial function may look at the growth of contribution. For example, the CFO might set up a measurement to calculate each location or team's contribution to the overall budget or EBITDA. This means meeting goals, but it might also mean controlling costs.
When the contribution is greater in the second period as compared to the first, the bean counters are happy for a few minutes. Then, they recast their spreadsheets for the following period so they can be unhappy again.
Free Cash Flow
Warren Buffet and Charlie Munger will tell you that one of the most important things in investing is a company's free cash flow. Buffet and Munger would want to see you throwing off more cash in this period than in the last. They look for companies with greater and more reliable dividends. Not a lot of companies would measure sales growth this way, but it tells you something about how successful businesses look at different metrics.
On the Nature of Sales Growth
Growth means increasing revenue, profit, market share, average client size, and contribution. As a sales leader, sales manager, or salesperson, one way you will measure sales growth is revenue. Depending on what your company needs, you might also be responsible for other important sales objectives.
As an individual contributor, you should have your own sales growth goal. You should want to grow in effectiveness, measuring your win rate. As a sales leader, you might measure your productivity and effectiveness by measuring the percentage of your team hitting their targets. You might also need a Revenue Growth Blueprint to help you approach this in an organized way.