The difference between a company that barely survives and one that dominates its market is often traced to one critical metric: revenue growth. It’s central to a great corporate report card, reflecting a company’s ability to keep bringing in more money from sales year after year.
Healthy revenue growth is a driver of long-term value and success. For example, a growing revenue stream provides the capital a company needs to reinvest in itself, whether that’s by hiring top talent, launching new products, or expanding into new markets. It’s a key indicator of a business’s financial health and helps provide the stability needed to weather economic shifts and outperform competitors.
This guide explains what revenue growth is, how to calculate it, and how to evaluate the drivers behind it so you can make better decisions.
What is revenue growth?
Revenue growth is the increase in a company’s total revenue over a designated period (monthly, quarterly, or annually). Businesses typically calculate revenue growth regularly to monitor performance, spot trends, and adjust sales strategies. Public companies report it quarterly, giving investors a consistent basis for comparison.
The growth percentage is known as the revenue growth rate. That figure provides a concise way to track a company’s performance over time. This metric can also be used to evaluate specific revenue streams and the performance of various customer segments, letting you understand which areas of your business are driving revenue growth.
Significant revenue growth is often the result of strategic business decisions, as well as favorable market conditions. It rarely happens by accident. Here are some scenarios when a company could have growing revenue:
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Launching a successful new service or product. A product that fulfills an unmet need or creates an entirely new market could quickly lead to additional revenue streams.
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Expansion into new markets. Whether you’re entering a different geographical region or going after a new target audience, market expansion can boost revenue growth. This requires understanding the new market’s needs and a tailored sales and marketing approach.
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Successful marketing campaigns. A highly effective marketing campaign could increase customer acquisition, leading to a bigger customer base and more revenue—especially when paired with sales teams that convert leads into customers.
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Strategic partnerships. Partnering with complementary businesses (e.g., a software company with a hardware manufacturer) can create bundled offerings and new revenue streams for both sides.
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Increased pricing. If the demand is strong, you can adjust pricing strategies without losing too many existing customers, lifting revenue generated without raising operating costs.
Why revenue growth is important
Strong revenue growth is important if you want to attract investors, get a loan, or fund new initiatives like expanding research and development or entering new markets. It can also be a sign that a company’s sales and marketing efforts are effective.
Revenue growth may also signify that a business has expanded its market share. For startups and young companies, a high revenue growth rate could be seen as an indicator of product-market fit and ability to scale. For more mature businesses, it demonstrates resilience and the ability to adapt to evolving customer needs as well as changing market conditions.
By closely tracking revenue growth, investors can gauge a company’s competitive strength and its ability to outpace its rivals. Stagnant or declining revenue can be a red flag that signals a company’s growth rate has run into problems because of its business model or market relevance. For commerce businesses, steady revenue growth also funds inventory, fulfillment, and marketing while improving cash flow predictability.
How to calculate revenue growth
The revenue growth formula compares the current period revenue to the revenue of the previous period. The result is then expressed as a percentage.
Revenue growth = (Current period revenue - Previous period revenue) / Previous period revenue x 100
Example
Let’s say a company’s total revenue in 2024 (previous period revenue) was $10 million, and its total revenue in 2025 (current period revenue) was $12 million. The revenue growth calculation would be:
($12,000,000 - $10,000,000) / $10,000,000 x 100
or
$2,000,000 / $10,000,000 = 0.2
0.2 x 100= 20%
In this example, the company has a revenue growth rate of 20%.
How to evaluate revenue growth
- Sales and marketing performance
- Customer acquisition and retention
- Pricing strategies
- Product portfolio
- Competition and market conditions
Evaluating revenue growth involves more than looking at the percentage change. You need to analyze the fundamental drivers and challenges. The metric’s true value is in what it reveals about a company’s financial health and future revenue potential.
Businesses may want to consider analyzing these factors to assess increases or decreases in their revenue growth:
Sales and marketing performance
Taking a deep dive into your sales metrics and marketing campaigns can help you project revenue growth. Ask yourself, “Are sales teams meeting their targets? Are marketing efforts generating high-quality leads?” If the answer to those questions is no, the company should reevaluate its sales strategies and growth tactics.
Sales training can help improve conversion rates, and you can optimize marketing campaigns by reviewing data analytics to target different customer segments. To improve efficiency, you can also implement a unified revenue operations platform, a single, integrated system that centralizes sales, marketing, and customer service data and automates key processes.
Customer acquisition and retention
A business can’t achieve revenue growth without a healthy balance of acquiring customers and retaining existing ones. Analyze your customer acquisition cost compared to your customer lifetime value. If the cost to acquire a customer is too high compared to their value over a lifetime, then you won’t turn a profit. A high churn rate, a sign that you have lost customers, can also affect revenue growth.
To improve this, you can create a more targeted strategy to acquire customers. This might include loyalty programs, providing superior customer service, and personalizing communication. Engage with clients proactively to reduce the churn rate, so you can increase their lifetime value and customer retention rate.
Pricing strategies
A product or service’s pricing strategy directly affects average revenue. Analyzing whether pricing is too high (driving away customers) or too low (leaving money on the table) is key. If you adjust pricing based on market saturation, competitive analysis, and the perceived value of your service or product, it can have a direct impact on your company’s revenue growth.
Conduct a pricing review to make sure it reflects competitive offerings and market demand. Consider trying tiered pricing or value-based pricing, which may capture more revenue potential from different customer segments.
Product portfolio
A strong portfolio ensures that the business is not overly dependent on a single product or service. Could your company have a more diverse range of revenue streams? Is subscription revenue or recurring revenue a significant part of your bottom line? Introducing new products or enhancing existing ones could create new revenue streams and unlock revenue potential.
Competition and market conditions
External factors, such as the overall health of your industry’s market and the actions of your competitors, can influence a company’s growth rate. Strong revenue growth might be a result of a booming market, or it could be a signal that the company is outperforming its competitors. If that’s unclear, consider performing a market analysis, so you can identify new growth opportunities. Keep a close eye on the sales growth and competitors’ strategies, and look for partnerships that help you enter new markets or counter competitive pressure.
Revenue growth FAQ
What’s the difference between profit growth and revenue growth?
Profit growth measures the increase in a company’s net income, which is calculated by deducting expenses (like operating costs, taxes, and interest) from total revenue. Revenue growth measures how much a company’s revenue increases from sales of services or goods. A healthy business strives for both revenue and profit growth.
What’s the difference between income growth and revenue growth?
The terms “income” and “profit” often are used interchangeably in business. Income growth is the increase in a company’s earnings after all expenses are accounted for. Revenue growth focuses solely on sales growth, not bottom-line profitability.
What does five-year revenue growth mean?
Five-year revenue growth is a long-term metric that shows the compounded annual growth rate of a company’s revenue over a five-year period. It provides a broader picture of a company’s long-term performance than a single-year analysis, which can be affected by one-time events or fluctuations in the economy.
