Ecommerce

How to Calculate Business Growth Rate

Business growth rate gives you a bird’s eye view of your company’s performance. It provides an understanding of how fast you’re growing, any dips in your growth, and alerts you if your growth pattern shows a consistent negative trend. Not to mention practically every other revenue metric relates back to your rate of growth.

Quick definition: Business growth rate measures the increase in your revenue and shows the potential of expansion for a specific period.

If you’ve just started your business, growth rate becomes even more important as the initial phase sets the trajectory of your business. Plus, if you have any investors to answer, measuring your economic growth rate becomes non-negotiable. The percentage change shows the result of your efforts and helps set goals for the future.


How to Calculate Growth Rate

You can calculate your business growth rate with this growth rate formula:

Growth rate = [(Current value - Past value) / Past value] X 100%

For instance, if you want to calculate the growth rate in revenue from last month to the current month:

  • Subtract the revenue for the two months
  • Divide it by the last month's revenue
  • Multiply with 100 to get the percentage

Say your revenue for the last month was $1,000. For the current month, your revenue is $1,200. Then, the growth rate will be 20%:

Growth rate = [($1200 - $1000) / $1000] X 100%

While it’s tedious, it’s incredibly important. You can work around this process by automating it so that your team doesn’t have to spend time on manual calculations. Having a quick view of your average growth rate is super valuable for setting benchmarks; all the better when you don’t have to keep up with the calculations by manually figuring out your rate of change.


How Peel Automates Growth Rate

What you measure, grows. This applies to your business growth rate as well.

But how often are you calculating the growth rate? How much time does it consume? How many excel sheets do you have to pull up for the calculation?

If you only calculate the growth rate when you need to create a quarterly or monthly report, you’re not harnessing the full benefits of the metric. You may be flying blind if you wait an extended period of time to before calculating your growth rate. But it’s understandable considering the time and effort it takes to do this manually.

Now, imagine seeing your growth rate in a visual format with just a single click. Not only that, you can also get a weekly report of your growth rate sent straight to your Slack:

As this image shows, the revenue growth rate metric shows the difference in revenue between two months in percentage.

What’s special? You can get individual revenue reports segmented by customers, locations, multi-touch attribution channels, orders, products, and subscription status. Plus, you can also see the revenue growth rate for individual email marketing campaigns.

Having access to such granular revenue details tells you exactly what’s working (or what’s not). For example, you can track different email campaigns and compare the contribution to the top-line revenue. You can also see what products are bringing in the most (and least) revenue and create strategies to push those products.

A key factor here: visualization. We totally get that not everyone is an economist or stats expert. In fact, we know lots of DTC teams who operate without an “owner” for the numbers and data. That’s exactly what we aim to enable. Peel packages your growth rate (and all other metrics) in a visual format that’s digestible for everyone, from your most technical user, to your least numbers-focused stakeholders. It’s really all about the democratization of data and economic analysis.

The best part: You get all of this by just connecting your database to Peel. After that, the metric calculation is automated and just takes one click to visualize the growth.


Calculating Growth Rate for Subscription Brands

As subscriptions are canceled, renewed, or upgraded every month, the growth rate becomes an important metric for subscription brands. You have to calculate this metric regularly to keep a tab on your churn rate.

You can calculate your monthly recurring revenue (MRR) growth rate by having:

  • New subscriptions
  • Reactivated subscriptions
  • Upgraded subscriptions
  • Canceled subscriptions
  • Downgraded subscriptions

Once you have the five numbers, here’s how to calculate the growth rate:

Step 1: Subtract the loss in revenue from the incoming revenue to get the net revenue.

Net revenue = (New subscriptions + reactivated subscriptions + upgraded subscriptions) - (Cancelled subscriptions + downgraded revenue)

Step 2: Compare this revenue with last month’s net revenue.

Revenue growth rate = [(Net revenue of current month - net revenue of last month) / Net revenue of last month] X 100%

For example, if the revenue of April is $5000 and the net revenue of May is $6000, you get a net revenue growth rate of 20%.

Looks complex?

Peel automates this daunting calculation for you. Not only that, but it also gives you a measure of subscriber growth and subscription growth.

One of your subscribers may have multiple subscriptions. If you’re calculating only one metric, you won’t get the granular details. Being able to see the changes in the two metrics will give you different information.

For example, if you see a large number of customers with two or more subscriptions, you can get an insight into what they’re finding useful and then market those products to other similar cohorts.


5 Strategies to Improve Growth Rate for E-commerce Businesses

1. Offer Special Discounts to Bring Previous Customers Back

If you want to improve your growth rate while also maintaining your profits, try to target previous customers via personalized discounts. The reason is that an existing customer is 60-70% more likely to purchase from you.

Plus, you have first-party data of existing customers. You’re aware of their likes, dislikes, and preferences.

So, leverage the data to send personalized emails or SMS with a special discount code and product recommendations.

Antropologie special discount for growth rate strategy
Example of a personalized email offer from Anthropologie

But how do you know when to send an email, so that the odds of conversion are high? You don’t want to risk sending an email too early or too late.

With Peel, you can see the “days since first order” of a cohort. Based on this, you can send the repurchase reminder. Usually, 45 days after the first order is a good time to send such emails.

2. Create a Subscription Option to Increase Recurring Revenue

There's nothing like a subscriptions program to secure monthly recurring revenue (MRR). Capturing customers who are already loving your products with more consistent purchases, automated by a monthly subscription program is a huge step toward sustainable growth.

This also gives you the opportunity to benefit your brand while giving the customer a way of saving money over time. The ultimate win-win. Over time, you can tinker with upsell opportunities to offer add-on items onto customers' subscriptions. So, it's a strategy that not only captures MRR from customers, but promotes growth in the long run. Once customers are in your subscription ecosystem, you'll experience the benefits of having a more consistent relationship with them, which leads to better customer loyalty and more valuable customers over time.

Check out how Sitka Salmon Shares sets up their subscription offerings. They provide quality, sustainable seafood options with customers able to customize their choices and choose to save even more based on the monthly or yearly commitment they sign up for.

Sitka Salmon Shares - Subscription growth rate strategy


3. Create Email Campaigns to Retain Customers

Once you have a customer signed up for your newsletter, make sure you have a sequence to engage them. Start with a welcome email and create a newsletter schedule that works for you.

This will keep your brand at the top of their mind when they need to make a purchase. Another great technique that goes hand in hand with keeping your products in your customers’ minds are abandoned cart emails. Having automations in place to recognize what your customers added to their carts and then didn’t check out with, has become a mainstay technique for capturing revenue that would’ve otherwise slipped through the cracks. 

Check out how Princess Polly automates abandoned cart email (with the help of our friends at Klaviyo) to get product that's fresh in customers' minds back in front of them to convert!

Princess Polly - abandoned cart email to boost growth rate


4. Strategic Cross-sell Product Recommendations

Cross-selling is when you offer similar products that a customer may be interested in. You can place this on the check-out page or as recommendations on product pages. It's always good to spice up your customers' shopping experience and expose them to similar products that they may not have seen while on your site. This is a great method for boosting average order value (AOV) and driving more conversions.

Here’s an example of a well-placed recommendation that shows a variety of vibrant options on Jones Soda Co's product page:

Cross-sell product recommendations increase growth rate


5. Capture Customers with an Introductory Discount

Don't go down without a fight! You can easily automate your site to create a pop up for prospective customers who are going to leave without converting. Or, if you capture emails with the promise for more info or offers, you have the opportunity to attract customers with a first time purchase discount.

We actually chatted about this before in a whole blog on securing a high lifetime value (LTV) customer with an introductory discount. It's a proven method of driving more conversions and more valuable customers for your site.

Check out a few of the pop ups from a couple of the brands we've talked about in this article. Nothing like a quick intro discount to sweeten the deal!

intro discount for growth rate
email capture + discount boosts growth rate


Start Automating Growth Rate with Peel

Growth rate, when used properly, can guide your marketing strategies and help you modify the existing strategies for better results. You need to make sure you’re calculating it on an ongoing basis to track changes and shift your strategies when necessary.

Peel automates the entire process for you, allowing you to calculate the growth rate segmented by important metrics like customers, subscriptions, and more. Try the 15-day free trial today.