LeoGlossary: Growth Rate

Rate at which any given variable has or is expected to grow over a specific period of time. Different industries consider different benchmark rates for growth. The most common growth rate measures the percentage increase in value of a variable – a country’s economy or company’s earnings- has increased over one year.

This can apply to revenues, earnings, users, or customers.

How To Calculate

The formula is as follows:

[ (Vcurrent - Vprevious) / Vprevious ] x 100 = Growth rate

V = Value

The previous value is subtracted from the current value. The difference is divided by the previous value which is them multiplied by 100.

That will provide the growth rate.

Business Growth Areas

Businesses are very interested in varying growth rates.

Here is a sampling:

• revenue
• sales
• profits
• customer retention
• lead generation
• lead conversion
• daily active users
• monthly active users

Economic Growth

Countries want to see the economy growing. The totality of activities of businesses end up comprising the overall economy.

The metric most utilized is gross domestic product (GDP).

An economy has different sectors that typically are focused upon:

• Primary : fishing, extraction of raw materials, agriculture
• Secondary : manufacturing of finished goods, construction, utilities
• Service : retail, banks, IT, finance
• Quaternary : knowledge and education

We can see how each sector feeds into the others. Growth rates in each area has an expanding impact upon the entire economy.

A country's GDP tends to be expressed as a growth rate over the previous period.

Intervals

Growth rates are on varying intervals.

In business, most look at year-over-year (YoY). This compares the change over the 12 month period of time. For most public companies, the data compiled over the period of a quarter.

There are times where rates are compared on a quarterly basis, known as quarter-over-quarter (QoQ).

Finally, some metrics are on a monthly basis.

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