When it comes time to check your company’s monthly metrics, it’s normal to focus on a single month worth of data. Realizing a 30% improvement in sales may be heartening but looking at these figures in isolation doesn’t necessarily give you the full picture of your performance. A single month’s data has value, but it can be misleading if you don’t place it in proper context.
So how can you truly gauge your success on a broader scale? One of the better metrics you can use is year-over-year growth. By comparing your monthly numbers to a larger sample and comparable periods, you can eliminate factors that may be distorting your data. To understand how to calculate your growth year over year, start by establishing a clearer idea of what it means.
What is Year-Over-Year Growth?
Year-over-year (YOY) growth is a key performance indicator that compares growth in one period (usually a month) against a comparable period twelve months before. Unlike single month metrics, YOY growth helps you remove seasonal effects, monthly volatility, and other factors to arrive at a clearer picture of your actual success over time. This makes it a highly useful aspect of your retail analytics.
One of the biggest benefits this metric offers is the elimination of seasonality from your growth metrics. For example, most retailers see a sharp uptick in sales during the holiday season. On a single month basis, it may seem like data indicates massive growth. However, these inflated numbers aren’t truly representative of growth over time, as they tend to return to normal levels after the holidays pass.
Instead, by comparing it to similar periods over time, you have a more precise measure of your growth. As an example, monthly sales growth of 40% for November may seem like a massive jump worth celebrating. However, when compared to a year prior, when growth was 45%, that number indicates a moderate slowdown, not a spike.
However, focusing on 12-month periods may also present you with too broad of a picture. It’s good to combine the longer-term perspective with similar measures such as month-over-month and quarter-over-quarter, which help you analyze different aspects of yearly growth and see how your organization is performing comparatively.
YOY growth also lets you measure various aspects of your growth beyond dollar signs. You can calculate conversions, average sale value, and other revenue-related metrics.
How to Calculate YOY Growth
With a better understanding of why it’s useful, you can more easily evaluate the YOY growth calculations. The first step is to collect the data you’re going to need: your monthly data for the period you’re examining, and the same information for the period recorded 12 months prior.
The process is quite simple and takes three steps:
Take your current month’s growth number and subtract the same measure realized 12 months before. If the difference is positive, your organization experienced growth; if it’s negative, you realized losses.
Take the difference and divide it by the prior year’s total number. This will give you the growth rate for your 12-month period.
Multiply it by 100 to convert the growth rate into a percentage rate.
Using a real-world example can help illustrate the calculation. Let’s imagine your monthly revenues for January 2018 were $1,000 dollars and revenues for January 2017 were $950.
Start with subtraction, giving a year over year difference of $50 ($1000-$950).
Divide $50 by $950, giving you a growth rate of 0.05.
Multiply it by 100 for your final percentage growth rate of 5%.
See it in action:
Some Real-World YOY Growth Examples
YOY growth is useful in retail, but there are several other industries that can benefit from including these measures in KPIs and analytics. These are just a few examples of how useful YOY growth can be:
Healthcare: Measuring aspects like patients served or cost per patient can be enhanced when combining YOY figures with different policies. Measuring growth after the introduction of a new practice can provide evidence if it was effective or not.
Manufacturing: Factories can see how efficient their production lines are by measuring how much their manufacturing rates grow or decrease over time. By combining it with sales data, manufacturing analytics can help companies prepare better for seasonal changes.
Logistics: In an industry measured by the number of items delivered and efficiency, YOY growth can indicate how well companies meet this goal. Comparing deliveries over time can highlight areas for improvement and help pinpoint activities where streamlining functions could prove beneficial.