What are the different types of company growth?
In this section, we look at various types of company growth rate metrics to help you better understand your organization's figures.
Industry growth rate
Different industries have different growth rates and benchmarks. It’s wise to benchmark against those in the same industry when comparing your business. For instance, the retail industry, which has been around for some time, will have a different benchmark compared to companies dealing with cutting-edge technology.
Also, growth in some industries may be cyclic with high growth during periods of economic expansion and low growth during a recession. But even if historical data indicates growth during certain time periods, it doesn’t necessarily mean you’ll experience the same high growth rate if a similar event comes around again. The reason is that economic and industrial conditions may differ from past conditions.
Seasonal businesses tend to enjoy growth during certain seasons and slump during others. For example, if your SaaS company sells services to students, you may experience decreases in sales when schools close and a spike in revenue when they open. Similarly, an ecommerce store may see an increase in sales during the holiday season followed by returns and cancellations soon after the holidays.
Understanding your company's growth rate may be more difficult for you as you can’t compare one month to the other. If you do, the figures won't make sense. But comparing the same month's performance year-over-year helps you gauge trends more accurately.
Compound annual growth rates (CAGR)
Compound annual growth rates refer to a company's average annual growth rate over a specified period. The assumption here is that returns are reinvested every year, and the growth rate ultimately remains steady.
The formula for calculating CAGR:
CAGR=((Ending value)/(Beginning value))^(1/n)-1
Where n is the number of years
Generating the same amount of revenue as a business grows actually results in declining growth. This happens because revenue as a percentage of overall revenue keeps getting smaller. To consistently grow, companies must generate compound growth or grow at a faster rate every period.