What is YoY growth? What is the formula and why it is important

Are you ready to take your business to the next level? If so, understanding YoY growth is important. Year-over-year (YoY) growth measures the percentage change in performance or revenue compared to the same period of time in a previous fiscal year. By closely analyzing and tracking trends, data points and insights associated with your company’s YoY growth rate, you’ll be able to assess opportunities for improvement and gain valuable insight into the success of your organization today as well as what can lead to future success down the line.

In this blog post we cover all that you need to know about YoY Growth from key definitions and metrics, strategies for maximizing returns as well as examples from small businesses that have achieved remarkable results using these techniques.

What is YoY Growth?

YoY Growth (Year-over-year growth) is a measure of the percentage change in the value of an item over time. It can be used to measure things such as profits, sales volume, or any other metric that you want to track growth for. YoY Growth compares the current year’s data against last year’s data and expresses the difference as a percentage. This is done in order to provide an apples-to-apples comparison, allowing for a more accurate and meaningful analysis. 

YoY Growth can be used to identify trends and help make decisions about future investments. Ultimately, YoY Growth helps businesses, investors, and analysts better understand the current trajectory of a company, industry, or sector. 

By understanding YoY Growth, companies and investors can make better decisions based on how the business is performing over time and can identify opportunities for growth. YoY Growth can help create a better understanding of the overall trajectory of an organization and how it is performing in comparison to other businesses in its sector or industry.

Why Is It Important For Startups to track the YoY Growth?

Following are the reasons why tracking the YoY Growth is important for Startups:

It Offers Insight into Your Business Performance: 

YoY growth helps you to understand how your business is performing over time. This allows you to gain insight into areas where there are opportunities for improvement and how successful certain strategies or products have been in the past year.

You Can Monitor Your Marketplace Position: 

By tracking your YoY growth, you can better understand your marketplace position. You can identify how your competitors are performing and adjust your strategies accordingly to stay ahead of the competition.

You Can Track Your Finances: 

Tracking YoY growth enables you to gain a better understanding of your financial performance over time. This allows you to accurately forecast future expenses, plan for growth and ensure you are staying on track with your budget.

You Can Make Better Decisions: 

By understanding how your business is performing in relation to the previous year, you can make more informed decisions about where you should focus your efforts for future success. This allows you to plan strategically and make the most of the resources available to you

It Helps You Identify Patterns: 

By tracking your YoY growth, you can identify patterns in the data that may not have been visible before. This allows you to adjust your strategies accordingly and make more informed decisions about how to move forward. 

In conclusion, tracking Year-over-Year (YoY) growth is an important tool for any startup looking to succeed over the long term. It offers insight

How To Calculate the YoY Growth?

Here is the formula to calculate the YoY Growth :

Now let’s take an example to understand this better. Let’s say you want to calculate the YoY growth of a company’s sales over the last two years. The total sales in 2018 were $50,000 and it increased to $75,000 in 2019. 

To find out the YoY Growth, we need to plug these values in the formula. YoY Growth = (75,000 ÷ 50,000) – 1≈ 0.5 or 50%

This means that the company grew its sales by 50% in 2019 compared to 2018.

What factors affect the YoY Growth?

The following factors affect the YoY Growth:

1. Economic conditions: 

The overall economic conditions both domestically and globally, including GDP growth, inflation, exchange rates and employment trends, can have a major impact on the YoY Growth rate.

2. Company Performance: 

Changes in company performance—such as sales, profit margins, operating efficiency or market share—can affect the YoY Growth rate.

3. Market Conditions: 

Any changes in the competitive landscape, industry trends or regulatory environment can also have an impact on YoY Growth rate.

4. Resource Availability: 

Access to capital and human resources can also affect the YoY Growth rate.

5. Innovation: 

The ability of a company to develop innovative products, services or strategies that attract customers and investors can have a major impact on the YoY Growth rate.

6. Consumer Demand: 

A company’s ability to meet consumer demand and preferences can also influence the YoY Growth rate.

7. Interest Rates: 

Changes in interest rates may affect a company’s ability to finance its operations, which can have an impact on its YoY Growth rate.

8. Currency Exchange Rates: 

When foreign currencies fluctuate, companies may need to adjust their strategies in order to remain competitive, which can affect its YoY Growth rate.

9. Political Factors: 

Political uncertainty or changes in government policy can impact a company’s YoY Growth rate.

10. Natural Disasters: 

Events such as hurricanes, earthquakes, or floods can disrupt supply chains and hurt a company’s YoY Growth rate. 

In conclusion, there are many factors that can affect the YoY Growth rate of a company. Companies should be aware of all these factors and adjust their strategies accordingly in order to maximize growth potential

What is good YoY Growth?

Good year-over-year (YoY) growth is a measure of performance in which the current period’s results are compared to the same period from the previous year. It helps to determine whether an organization is growing or declining over time and serves as an indicator of economic health. Positive YoY growth indicates that an organization is doing better than it was in the previous year, while negative YoY growth may suggest that an organization is not performing as well. 

YoY growth can be measured using different metrics, such as sales revenue, profits or even customer numbers. It’s important to note that YoY growth doesn’t always indicate a positive trend; for example, a business may experience YoY growth despite declining overall, due to seasonal factors or other external influences. 

What is an example of  YoY Growth?

Step 1. Operating Assumptions (Revenue and EBIT)

To project the revenue and EBIT of our company, we’ll be assuming the following growth rates for each metric: Revenue YoY Growth = +4% and EBIT YoY Growth = -3%.

Step 2. Project Revenue and EBIT (5-Year Forecast)

Using these growth rate assumptions, we can calculate the projected current period balance by multiplying the prior period balance by (1 + growth rate assumption). For example, if Year 0’s revenue is $100m, then Year 1’s revenue after applying our 4% YoY growth assumption would be $104m. We can use the same approach to calculate projected revenue and EBIT in all forecasted periods.

Step 3. YoY Growth Calculation Analysis Example

To assess growth trends in a company’s yearly performance, we divide the current period amount by the prior period amount and then subtract 1 to arrive at the implied growth rate. For example, in Year 1 we divide $104m by $100m and subtract one to get 4.0%, which reflects the growth rate from the preceding year. This allows us to better understand a company’s recent growth trajectory, current stage of the lifecycle, and cyclical trends.

Source: Wallstreetprep

Tips to improve the YoY Growth 

following strategies can help to improve the YoY Growth:

1. Focus on customer satisfaction: 

Prioritize quality service and products to ensure customer loyalty and satisfaction. This will lead to increased repeat customers, improved word-of-mouth reviews, and ultimately more growth.

2. Utilize data analytics: 

Leverage data from your sales channels to identify trends in customer behaviour. Use this information to make informed decisions about how to adjust your strategy to better meet customer needs. This will help you stay ahead of the competition and maximize your YoY growth.

3. Invest in marketing: 

Develop a comprehensive marketing plan that targets both new and existing customers. Use various tactics such as email campaigns, social media posts, and search engine optimization (SEO) to engage customers and drive more sales.

4. Monitor your competitors: 

Keep a close watch on your competitors’ pricing and product offerings, as well as their marketing strategies. This will help you stay one step ahead of them and keep your growth rate high.

5. Increase efficiency: 

Invest in automation solutions that can streamline operations, reduce labour costs, and improve efficiency. This will help you save time and money that can be reinvested in other areas of your business to increase your YoY growth.

6. Embrace new technology:

Utilize the latest technologies to stay ahead of the competition. Implementing innovations like artificial intelligence (AI) or machine learning (ML) can give you an edge over your competitors and help you achieve greater growth.

7. Experiment with pricing: 

Consider different pricing strategies to see which one works best for your business model. Adjusting prices in order to increase profits or offer special discounts can be effective ways of increasing revenue and overall YoY growth.

8. Build relationships: 

Develop strong relationships with customers, suppliers, and partners in order to ensure loyalty and repeat business. Additionally, having a strong network of industry contacts can help you stay up-to-date on the latest trends and capitalize on emerging opportunities.

9. Analyze results: 

Track your growth rate over time using key performance indicators (KPIs). This will allow you to identify problems or potential areas of improvement and adjust your strategy accordingly.

10. Invest in the future: 

Plan ahead by investing in research and development (R&D) to stay ahead of the competition. This will help you create innovative products or services that can drive more sales and higher YoY growth over time. 

By following these strategies, businesses can better understand their customers and the market, optimize processes, and drive profitable YoY growth.

The Bottom Line

Year over year growth is an important metric to measure the success of your business. There are a few things you need to know in order to accurately compare YoY growth. By following these tips, you can make sure that you are making decisions based on data that is relevant and accurate.