How To Calculate Growth Rate: Formulas + Uses

As a business owner, you face pivotal decisions daily: when to hire staff, whether to add a new product line, whether you’re ready to expand into new markets, when to seek outside investment, and more. These choices can make or break your business, and they shouldn’t be based on gut instinct alone.

Growth rate calculation is one of the most reliable ways to assess your business’s financial health and readiness for major moves. When you calculate growth rate, you select a metric to track (such as revenue or units sold) and evaluate how it has changed over time. If the current value exceeds the past value, your company is growing. If not, it’s stagnating or contracting.

This guide explains how to calculate growth rate, how to use it to inform decisions, and how to keep your business growing.

What are growth rates?

Growth rates represent the percentage change in a specific business variable over a specific period. This variable could be any number of metrics, including revenue, sales, profit, customer acquisition, or market share. Growth rates can be positive (indicating an increase) or negative (indicating a decrease).

Growth rates measure how well your business is performing over time—whether it’s expanding, stagnating, or shrinking. Expressed as a percentage, a positive growth rate signals strong financial health, while a negative growth rate suggests something may need to change. However, you should always consider growth rates alongside other metrics.

You can leverage growth rate statistics for:

• Making informed financial and strategic decisions

• Identifying sales trends

• Comparing performance against competitors or industry growth rates

• Attracting investors or funding

What is a good growth rate for a company?

What constitutes a “good” growth rate depends heavily on several factors, starting with your company’s industry, size, and maturity.

Startups may target very high growth rates, perhaps aiming for 15% to 25% monthly revenue growth in their early phases, according to M Studio consultancy. Annual growth rates run high in the first few years of successful startups, especially in the tech industry. For instance, UX design agency Eleken notes that small software-as-a-service (SaaS) businesses may exceed 50% year-over-year (YoY) revenue growth in their early years. More mature companies may target lower, more sustainable growth.

Some companies grow at the same rate as their overall industry. If you’re in retail, your business may not grow as fast as a tech startup. The global ecommerce growth rate is forecast to be 7.8% in 2025 and 7.5% in 2026. Retail as a whole has a more modest forecast, according to eMarketer: 4.2% in 2025 and 3.8% in 2026. Even at slower rates, sustained YoY growth is a hallmark of a healthy business.

How to calculate growth rate

The basic growth rate formula is quite simple. It always takes the same format; the only thing that changes is the specified time period.

Growth rate = [(Present value - Initial value) / Initial value] x 100

You can apply this to any specified period you want. For instance, when calculating YoY growth rate, your starting value and ending value correspond to years. A quarterly (QoQ) or monthly (MoM) growth rate calculation takes the beginning value and final value from the start and end of the quarter or month, respectively.

Here are some examples:

Say your business generated $450,000 in revenue in 2023 and $605,000 in revenue in 2024. That represents a 34.44% growth rate:

[(Current year value - Previous year value) / Previous year value] x 100

[(605,000 - 450,000) / 450,000] x 100

[155,000 / 450,000] x 100

YoY growth rate = 34.44%

Similarly, if you want to measure profitability, you may want to compare the two most recent quarters. If your business generated $35,000 in profit in Q4 2024 and $28,000 in profit in Q1 2025, you’re looking at a negative growth rate of 20%. Simply replace the yearly values in the formula above with quarterly values.

Or, perhaps you want to measure your monthly growth in customers. In April 2025, your business had 700 customers, and in May 2025, it had 825 customers. Just substitute monthly values for the yearly values above and you’ll find a customer acquisition growth rate of 17.85%.

How to calculate average annual growth rate

If you’re looking for your company’s typical growth across time, you can find the average annual growth rate (also known as annualized growth rate). Keep in mind that this figure provides a “smoothed over” rate, minimizing volatility. You should use these figures alongside other metrics to get an accurate picture of your business’s performance.

Average annual growth rate (AAGR) is a straightforward calculation. You take the growth rate for each year within your range of years and divide it by the number of years.

AAGR = [(GR1 + GR2 + GR3 … + GR#) / Number of periods]

For example, if you wanted to find the average annual growth rate from 2020 to 2024, you’d first calculate each year’s growth rate using the YoY growth rate formula above. You’d then divide by the total number of periods, resulting in an annualized growth rate of 37.18%.

2020 revenue: $200,000

2021 revenue: $408,000 (104% growth rate)

2022 revenue: $550,000 (34.8% growth rate)

2023 revenue: $599,000 (8.9% growth rate)

2024 revenue: $605,000 (1% growth rate)

...

[(GR1 + GR2 + GR3 … + GR#) / Number of periods]

[(104 + 34.8 + 8.9 + 1) / 4]

[148.7 / 4]

AAGR = 37.18%

AAGR works well when you need a quick calculation to identify long-term trends. However, another measure of growth across time, such as the compound annual growth rate (CAGR), may provide more accurate results for forecasting purposes.

How to calculate compound annual growth rate

CAGR is similar to AAGR but accounts for compounded growth. In essence, it provides a steady growth rate that would take your business from point A (the first year of revenue) to point B (the last year of revenue). CAGR is expressed through the following formula:

CAGR = [(Ending value / Beginning value) ^ (1 / Number of periods)] - 1

So, using the same figures as in the earlier example, what steady growth rate would take your business from $200,000 in revenue in 2020 to $605,000 in revenue in 2024? The answer is 31.88%, which, you can see, is different from the AAGR.

[(Ending value / Beginning value) ^ (1 / Number of periods)] - 1

[(605,000 / 200,000) ^ (1/4)] - 1

[(3.025) ^ (0.25)] - 1

[1.3188] - 1

CAGR = 0.3188 or 31.88%

Calculating CAGR is more sophisticated than calculating AAGR or standard period-over-period, particularly when raising a number to some power (represented by ^ in the formula). Thankfully, spreadsheet software like Microsoft Excel or Google Sheets, growth rate calculators, and other tools can calculate compound growth for you.

You might use CAGR to project your overall growth, using your historical average growth as precedent. If you have many years of data to draw from, CAGR might provide a more accurate projection of future growth compared to AAGR or the YoY growth rate. Note, however, that CAGR assumes consistent economic conditions, and outside factors (e.g., a changing inflation rate, disruptive natural disasters, or political events) can throw a wrench into your predictions.

How to use growth rate to inform business strategy

• Market research and product development
• Investing
• Marketing and sales
• Hiring and staffing
• Expansion

Growth rate calculation helps you evaluate your business’s performance, revealing the degree to which it’s expanding or contracting. Here’s how you can apply growth rates to make better business decisions:

Market research and product development

Growth rates provide insights into market dynamics and customer demand, helping you decide where to focus your research and development (R&D) efforts. For example, if you observe that your YoY revenue growth rate is 30% for eco-friendly products but only 5% for standard offerings, you might shift more R&D dollars toward sustainable goods.

When possible, direct your market research toward understanding why a segment is growing so rapidly (what specific customer needs are being met, what competitors are doing, what features customers value most). This may give you new insights into your customer base and help you anticipate future market trends.

Investing

Growth rates are a primary indicator for both internal stakeholders and outside investors as they decide where to allocate capital. For example, if your business shows a 20% CAGR over a three-year time frame, you may be in a strong position to seek funding from new investors. Or, you could opt to reinvest profits to bolster infrastructure and operations.

A strong growth rate makes a company attractive to venture capitalists or angel investors who prioritize high-growth potential. From an internal perspective, growth justifies allocating more capital toward scaling operations, expanding inventory, hiring new staff, or even acquiring smaller competitors to consolidate market share. Conversely, if a product line shows declining growth rates, investors may shy away, and your business may need to scale back its goals.

Marketing and sales

Growth rates help you assess the return on investment (ROI) and impact of your marketing efforts. They also help you set realistic yet ambitious sales and revenue targets. On the marketing side, imagine your website traffic from paid search is growing at 25%, but organic growth is flat. This means it might be time to increase ad spend or optimize SEO efforts to drive traffic.

On the sales front, if you’ve consistently grown your annual revenue by 10% over a number of years, it may be time to aim higher. Perhaps you’ll set a sales goal of 12% YoY revenue growth—the modest increase that represents acceleration based on market conditions.

Marketing and sales growth rates help you steer your budget toward high-performing marketing channels, products, and sales strategies. They help your teams push beyond historical performance while still setting achievable goals.

Hiring and staffing

Many companies calculate revenue growth rates to assess whether they’re adequately staffed. Say you sustained 20% growth in your sales order volume over the past 18 months. Over this time, you also saw an even greater percentage increase—35%—in new customer inquiries. Positive growth across these two different metrics indicates that your company may be ready to scale up its staffing.

By relying on hard data linked to your company’s growth rate, you can time your hiring decisions to match real demand. On the flip side, failure to staff up in response to growth can lead to burnout, service degradation, and, ultimately, customer churn.

Expansion

Another key reason for analyzing growth is determining whether you’re ready to expand to new markets or create new product lines. For instance, if your software-as-a-service (SaaS) company shows steady 10% customer growth on an annual basis, you might consider launching in new regions.

It’s best to look at large time intervals when you calculate the growth rate of your company for expansion decisions. If your business has been around for 10 years, you shouldn’t overreact to a few quarters of financial data. On the other hand, if your business has been growing at a 15% annual rate for a full decade, the choice to expand becomes much safer.

How to improve growth rates

Learning how to calculate growth rate is important, but actually achieving positive business growth is more important. Here are some tips to help you along:

• Refine your company’s value proposition. Every successful business offers a value proposition to its clientele. Make sure your product or service clearly solves a problem or meets a need better than competitors.

• Innovate to stand out in the market. Continuously develop new features, products, or services that anticipate and solve emerging customer problems. Differentiation helps you emerge from the pack in a crowded market.

• Optimize your pricing strategy. Test different pricing tiers, bundles, or subscription models to increase customer acquisition and customer lifetime value (CLV).

• Focus on customer retention. Growing revenue isn’t just about adding new customers; it’s also about keeping the ones you already have. Use CRM tools to track and follow up with current clients.

• Invest in content marketing and SEO. Use SEO-driven blogs, videos, and lead magnets to attract potential clients and build brand awareness over time.

• Improve customer onboarding and the user experience. A smoother onboarding process helps reduce churn and turn potential clients into paying customers. A satisfying user experience (UX) turns those new clients into loyal customers and perhaps even brand ambassadors.

• Streamline your operations. You can grow your net revenue by reducing expenses. Use automation tools or hire virtual assistants for email management, data entry, or client work to save money. These AI tools can also free up time for your human workers to pursue revenue-generating activities.

• Experiment with new marketing channels. If you’re seeing flat growth, experiment with paid ads, affiliate marketing, or emerging social media platforms.

• Offer loyalty or referral programs. Encourage satisfied clients to refer others with incentives—this is a cost-effective way to generate high-quality leads.

3 limitations of growth rate

1. Growth does not equal profitability
2. Growth formulas may not account for fluctuations and volatility
3. Outside economic forces can skew growth reports

Calculating growth rate can tell you a lot about your business’s health and long-term viability. But before you fire up your growth rate calculator and start inputting data points, consider how growth metrics may distort business performance. Here are three key limitations of relying too heavily on growth rate:

1. Growth does not equal profitability

A high growth rate in revenue doesn’t necessarily mean the business is profitable. For instance, a startup may show 40% YoY revenue growth but still operate at a loss due to high marketing or staffing costs. Revenue growth rate alone can paint a misleadingly positive picture of financial health.

2. Growth formulas may not account for fluctuations and volatility

Growth rate calculations show the change from a starting point to an ending point over a period, but they don’t reveal the journey in between. For instance, if you’re measuring growth over a year, you might mistakenly think that the growth followed a steady linear track. In reality, there may have been significant fluctuations, periods of decline, or extreme volatility during that calendar year.

You can guard against this by tracking growth over different time intervals. In addition to tracking annual growth, look at quarterly and monthly rates. Comparing growth over two periods—one long and one short—may paint a more accurate picture.

3. Outside economic forces can skew growth reports

Growth rates can be skewed by macroeconomic forces (e.g., inflation, recessions), seasonal variations, or non-recurring events (e.g., a major product launch, a global pandemic). This can make historical growth an unreliable predictor of future performance.

When predicting future growth, ask what factors may change over time. Will your current customer base stay intact, grow, or contract? Will your supply chains remain in place, and how might raw material prices change? Could technological advancements like AI and machine learning change your business model? Answer these questions to supplement your growth rate calculations.