Niche or industry aside, prompting consistent progress is essential to the ongoing success of your business. That’s where year over year (YoY) growth enters the mix.
YoY growth is an effective means of measuring your ongoing progress and making sure your business is moving in the right direction.
But, what is year over year growth, exactly? Here we’re going to look at the concept of YoY and consider how you can use this essential metric to your business-boosting advantage.
What Is YoY Growth?
Year over year growth is a KPI that allows you to measure and benchmark your progress against a comparison period of 12 months before. YoY growth can be measured for revenue, leads, conversions, or any metric that an organization is looking to improve over time.
With YoY analysis, you compare growth data for two specific timeframes from consecutive years against one another to see if the metric has dwindled, increased, or remained the same. Typically, data for a financial year, month, or quarter is compared to the same time period of the previous year. This comparison helps decision-makers establish a baseline and conduct precise analysis without the noise of seasonality.
Working with the right year over year growth chart will not only help to map out key YoY trends, but it will also help everyone in the business make swift comparisons with a simple glance.
As you can see from this particular example below, it’s possible to map out profit rates in percentages between two fiscal years and pinpoint monthly peaks, troughs, and comparison points. That way, you’ll be able to spot any months where the yoy didn’t perform as expected and explore it further to drive deeper conclusions.
Further, this monthly data can be rolled up into a number chart that summarizes the overall year-over-year growth rate in a financial dashboard. Through this, you’ll be able to keep your dashboard clean and avoid overcrowding it with unnecessary graphs.
Why Do You Need YoY Analysis?
YoY analysis is important because it provides a long-term gauge of growth while neutralizing for seasonality. By documenting key patterns over set timeframes from one year to the next, you can understand how your company is performing on a consistent basis.
For example, retail sales tend to spike leading up to the holidays. Therefore, evaluating consecutive month-to-month or quarter-to-quarter revenues towards the end of the year will almost always look positive. However, comparing fourth quarter data of the current to the previous year’s fourth quarter results will provide more accurate and actionable insights.
Year to year change analysis will give the tools, as well as the business intelligence (BI), to identify actual dips in progress or performance and take strategic measures to get back on track.
YoY Growth Formula
Now that you’re up to speed with the concept, we’re going to dig a little deeper. By knowing how to calculate YoY growth, you can track your ongoing progress both efficiently—and with confidence.
Here is the fundamental YoY growth formula to track your annual progress:
Year Over Year Growth (YoY) = (Current Period Value ÷ Previous Year’s Value) – 1
Based on this formula, here’s a year over year example: If your company’s profits rose from $10 million in year two to $15 million in year three, YoY revenue growth would come in at a rate of 50%.
An alternative formula for calculating YoY growth is:
Year Over Year Growth = (Current Period Value – Previous Year’s Value) ÷ Previous Year’s Value
Using this formula, you’ll derive the same result: $15 million minus $10 million = $5 million, which divided by $10 million equals 50%.
Tips On How To Calculate Year Over Year Growth
To help you arrive at the right growth (or decline) percentage for your metrics, we’re going to explore some practical tips on how to work with the year over year growth formula:
1. Set your timeframe
First of all, you need to select a definitive YoY timeframe and stick to it.
To do this successfully and benchmark your progress, the two periods you’re looking to work with should be directly comparable. These timeframes don’t necessarily have to equate to a whole financial year—they simply have to mirror one another.
For example, you could calculate YoY growth for Q4 2020 and Q4 2021. As long as these timeframes match from one year to the next, you will make an accurate measurement and uncover trends that will benefit your business growth.
2. Gather the right numeric data
To achieve an accurate calculation, it’s also important to gather all of the relevant data you need to discover your YoY growth percentage and make reliable comparisons.
You can generally find the fiscal data you need from your company’s balance sheet or database. To ensure the two data sets are comparable, be sure to collect data for the same time period and from the same source.
3. Calculate your growth rate
Using a YoY growth calculator or a traditional calculator, divide the value for your selected time period of the current year by the value for the same time period of the previous year. Then, subtract one to reveal your annual growth percentage.
4. Analyze your discoveries
If you can map out your growth rates visually, you will be able to dig deeper into the data and uncover trends or fluctuations that will give you greater context on your progress or performance.
Not only will you be able to benchmark your ongoing growth rates against industry standards—you can also drill down into times when you notice comparative rates of loss or growth. As a result, you’ll be able to formulate strategies and initiatives that will help you deal with any issues hindering your growth and accelerate your commercial progress.
Year Over Year Growth Examples & Use-Cases
Across industries, knowing how to compare YoY growth will prove vital to your business strategy. There are several instances where working with it can benefit an organization— here are three common scenarios:
- Benchmarking against industry standards
If you want to know how your company is performing against general industry standards, calculating YoY growth within your market research dashboard is a useful exercise.
By finding your industry’s YoY growth benchmark and calculating your own over a set period, it’s possible to discover where you sit within the market in terms of progress. Knowing this information will give you the strategic direction you need for further growth.
- Making competitor comparisons
Another instance where year over year growth calculations come into play is when you’re looking at how your direct competitors are performing.
If you can find public revenue data related to your competitors’ fiscal performance (the figures related to the years or periods that you want to measure) and make your calculations, you can benchmark your success against the competition.
Armed with this intelligence, you can explore any patterns related to a competitor’s product launch or seasonal campaign and use this information as inspiration for your own business strategy.
- Looking at growth opportunities
Our last example is centered around spotting growth opportunities. If you’re looking at refreshing your marketing campaigns and communications, for example, you can calculate your year over year growth to visually map trends or patterns over a certain timeframe.
Doing so will empower you to spot where specific peaks and troughs lie. If you spot a comparative dip in profits for a specific point over the years you’re using for your calculations, you will be able to start formulating campaign ideas (perhaps based on a seasonal theme or trend) that will drive engagement and improve your future YoY growth rates.
YoY Growth Final Thoughts
If you want to ensure a steady rate of success for your business, monitoring and measuring year over year growth is essential. Keeping tabs on your YoY growth will allow you to set accurate benchmarks that you can work towards while giving you the insights to make key strategic decisions.
To get the most from your year over year calculations, working with modern data analysis tools is the way forward. Not only will data-driven visualizations and KPIs allow you to gain a bird’s eye view of your progress, but you can also access up-to-date calculations based on your input parameters. In turn, you can get a firm grip on these vital metrics indefinitely, keeping your business moving in the right direction in the process.
So, if you are ready to start tracking and analyzing your YoY growth across departments, try our professional online data analysis software for a 14-day free trial and benefit from smart analytics today!