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Your business tracks so much data that it can be easy to get caught up in the smaller picture and miss the bigger view. Case in point: when you look at your company’s monthly metrics, you’re focused solely on a single month’s worth of data. That 30% improvement in sales may look good, but taking this number on its own doesn’t 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 its proper context.
So how do you gauge success on a longer time-scale? The answer: year-over-year growth. When you compare your monthly numbers to a larger sample and comparable periods, you get a truer measure of your performance, minus elements that may be distorting your data. This article will help you learn how to calculate your growth year over year. First, we’re going to establish a clearer idea of what that means.
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What is Year-Over-Year Growth?
Year-over-year (YOY) growth is a key performance indicator comparing growth in one period (usually a month) against the comparable period twelve months before the previous year, hence the name). Unlike standalone monthly metrics, YOY gives you a picture of your performance without seasonal effects, monthly volatility, and other factors. You see a clearer picture of your actual successes and challenges over time. Unsurprisingly, this is a key metric for retail analytics.
The first big advantage of YOY growth is in eliminating seasonality from your growth metrics. Most retailers see a sharp uptick in sales during the holiday season. On a single month basis, this can give a false indication of massive growth. However, these inflated numbers aren’t truly representative of growth over time if they return to normal levels after the holidays pass.
Comparing similar periods over time gives you a more precise measure of your company’s growth. Here’s 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. Without YOY growth comparisons giving you a baseline and historical context, you just take whatever the most recent data gives you. Not a great way to make long-term decisions or drive long-term growth.
That’s not to say that YOY metrics are the be-all, end-all of analysis. Focusing on a 12-month period may also present you with too broad of a picture. Combining a longer-term perspective with complementary month-over-month and quarter-over-quarter analytics can help you analyze different aspects of yearly growth and see how your organization is performing in a variety of ways.
YOY growth is also about a lot more than just revenue. You can measure myriad aspects of your growth: conversions, average sale value, and other metrics that are related to, but go beyond your bottom line.
How to Calculate YOY Growth
Now that you know why it’s useful, you have a better frame of reference to evaluate your YOY growth calculations. So let’s dig into how, exactly, you do that. 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.
Once you’ve got your raw materials, the process itself 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, that indicates a loss.
- Next, 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 this growth rate into a percentage rate.
Let’s use a real-world example to illustrate this. 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%. Easy!
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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:
YOY growth reigns supreme in retail, but plenty of other industries can benefit from including these measures in KPIs and analytics. Dig into these examples to see how useful YOY growth can be:
- Healthcare: When measuring things like patients served or cost per patient, it’s vital to look at YOY figures with different policies. Watching performance change after introducing a new practice can show you if it was effective or not.
- Manufacturing: Factories live and die by how efficient their production lines are. Measuring how much manufacturing rates grow or decrease over time is vital to understanding processes, machine performance, and much more. By combining efficiency info with sales data, manufacturing analytics can help companies prepare better for seasonal changes and understand their long-term possibilities and challenges.
- Logistics: In an industry measured by the number of items delivered and efficiency, YOY growth can show if a company is remaining efficient and effective in the market, or if performance is slipping. Comparing deliveries over time can highlight areas for improvement and help pinpoint activities where streamlining functions could prove beneficial.
What are some alternatives to YOY growth?
While year over year growth is an important calculation to look at for your business, it’s not the only time-series measurement that can help you get a clearer picture of performance. You may also want to calculate the following:
- Month to date (MTD): measures a KPI from the beginning of the current month up until the current date, but not including today’s date.
- Quarter to date (QTD): measures a KPI from the beginning of the quarter up until the current date, but not including today’s date.
- Month over month (MoM): the difference between this month’s total (sales, users, etc.) and last month’s total.
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Jack Cieslak is a 10-year veteran of the tech world. He’s written for Amazon, CB Insights, and others, on topics ranging from ecommerce and VC investments to crazy product launches and top-secret startup projects.