How to Estimate Revenue Growth Rate: The Definitive Guide (2021)

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It’s tough to know how to estimate your revenue growth rate perfectly, isn’t it? Well, it turns out, you can dramatically have an impact on the quality of your estimation.  And a better quality means a higher chance to convince investors.

In fact, these same approaches helped us to write award-winning business plans.

We summed up everything you need to know on how to estimate revenue growth in this handy guide. 

Let’s dive right into it.

What is the revenue growth rate?

The revenue growth rate shows a prediction of the potential revenue growth over a specific period.

Simpler said: How much your revenue grows week to week, month to month, or year to year.

The Main formula to calculate revenue growth is:

revenue growth rate = revenue this period / revenue previous period

As said before, it’s up to you to choose what period you need.

We’ll have a look at some examples later.

First, let’s try to understand why we need to know our revenue growth rate.

Why is revenue forecasting important?

Revenue forecasting is important as it makes your company comparable to others.

As you might guess, this is very important to investors.

While your business itself might be already in a sound stage, investors want to have a decent return on their investment.

You see, it is not that important that your company is already established and makes high numbers.

If these high numbers are already around the revenue ceiling, because your business model has some critical limiting factors, your potential to grow will suffer. 

Investors will prefer a return of approximately 400% on a relatively new startup than having a return of  120% on an established business.

That precisely is the reason why we are doing this article, as this might be what you’re missing out on in your financial plan and business plan.

Forecasting earnings in company analysis?

Maybe you have read our ultimate financial plan guide, so this point might sound familiar.

One of the most important reasons for becoming better at estimating your revenue growth rate is the company analysis in your financial plan.

The financial plan is THE most essential element when it comes down to convincing investors of your company’s worth.

It sounds like it makes sense to get the estimation of your revenue growth rate as good as possible, right?

That’s exactly why we are here.

Ready to get practical? Read on.

 

 

How to calculate revenue growth rate?

Calculating the revenue growth rate can be pretty straightforward. 

You divide the revenue of a given period by the revenue of the previous period.

Sounds easy, right?

But wait a second. There is more. Way more.

As easy as it sounds, this question has depth to it.

To help you with your estimations in the most beneficial way, we will take a look at the most asked questions around the subject of revenue growth. 

And as a little bonus: At the end of this section, we will look at some interesting real-life revenue growth rate examples.

Avoid costly mistakes and get together with experts.

#1 – How to predict the growth rate of a company

The most manageable situation you could be in is when you already have a somewhat established business.

Your advantage here is that you can be astonishingly precise with your estimation by using historical data.

What is historical data?

Glad you asked.

Historical data stands for any information that you could gather in your company’s lifecycle.

A convenient way to look at historical data might be to have a ten thousand foot view of your revenue in given periods.

If you look at the last 5 to 10 years, at which times does your company have highs and lows? Maybe before, during, and after Christmas?

Or maybe you have a high in the summertime because people like your summer articles the most. 

You can use all this information to differentiate in your calculations.

By having somebody who can analyze and optimize your estimation based on your historical data (and optimally other’s historical data from experience), you’re set up to succeed.

Typically, most marketers like to create specific offers tailored to their analysis of historical data. 

Got highs before Christmas? Create unique gift offers. 

Note: The more data you have, the more proof you have. And investors like evidence.

TIP

Historical data is not only suitable for estimating your revenue growth rate. It’s also a fantastic way to improve your price strategy, sales strategy, positioning, copywriting, and any other buzzword that comes to mind.

By having somebody who can analyze and optimize your estimation based on your historical data (and optimally other’s historical data from experience), you’re set up to succeed.

Typically, most marketers like to create specific offers tailored to their analysis of historical data. 

Got highs before Christmas? Create unique gift offers. 

Note: The more data you have, the more proof you have. And investors like evidence.

 

#2 – How to forecast revenue growth rate for a startup

Let’s now have a look at forecasting revenue growth rates for startups.

It is a bit more complicated, but it still is possible.

What we like to do here is to differentiate between early-stage startups and established startups.

If your business is a relatively young startup, we recommend estimating your revenue growth rate based on weekly statistics.

Remember our formula?

revenue growth rate = revenue this period / revenue previous period

Instead of using months or years, as you would do for established businesses, try using weeks as your reference point.

Compare this week to the previous week. 

Or the current two weeks to the last two weeks.

You get the point.

There is one catch.

Early-stage startups can see extreme exponential growth.

This exponential growth can be quite misleading when it comes to estimating growth revenue from a long-term perspective.

But no worries, you can include that information as well. 

And investors will love you for that.

If you think your estimated revenue growth rate is too high to be sustainable for the next three years, you can split your estimation into parts.

Have an estimation for the next six months, one for the next year, and one for the next three years.

Doing that will make you gain trust.

Investors, banks, and other institutions will acknowledge that you know how growth works. 

They will love you for your ability to show how important it is to give the most accurate information possible.

There is a massive difference between having a 180% growth rate for three years and having 180% for the first year, but then dropping down to 120% in the following two years – which you can sustain on average.

Be sure to include that in your estimation.

Let’s get to our final topic.

 

Examples of revenue growth rate

We searched for hours and hours to find something suitable for you.

And we were successful in doing so! 

If you know what to search for, you can find astonishing data on the internet!

Let’s dive right in!

Revenue growth rate by industry

For our first example, we will have a look at the growth in revenue in French startups.

This statistic is terrific! 

What you can see here is the revenue growth of french startups divided by segments.

Remember when we talked about differentiating between early-stage startups and established startups?

In 2018, french startups with revenue from 0 to 5 million euros experienced a revenue growth rate of around 35%.

At the same time, french startups with a revenue of more than 50 million euros experienced a revenue growth rate of around 16%.

Or in other words:

The more established startups could not even generate half of the growth of the early-stage startups!

Or to put it the other way around:

Early-stage startups were able to generate more than twice the revenue growth rate as the already established companies! 

That’s excellent information! 

Revenue growth rate by country

To showcase a country-based approach of comparing revenue growth, we found two representative statistics.

Let’s first have a look at the rate of startup growth in the US.

While this graph does not show us the revenue growth rate specifically, it still directly correlates.

We can see here how much, on average, startups founded in the same year have grown over five years.

And how do you estimate startup growth?

Exactly. By having a look at the revenue. Or precisely, the individual revenue growth rate.

Note: This graph could tell us way more than that. It also tells us a lot about economic changes.

Why is it that the growth rates went down after 2007 and peaked after 2012? 

Were these the consequences of the great recession?

Information like these could make a difference in your pitch.

Here’s an interesting one.

We can see here the annual revenue growth rate in market research in different parts of the world.

And this statistic shows something that we have not talked about yet.

Did you know that growth does not imply a positive number?

In fact, growth can also be negative. 

More interesting examples

Here are some more interesting revenue growth rate examples.

Let’s first have a look at the fitness club industry in China.

If you read our guide so far through, you might already see what value this chart could have for us.

Imagine you’re a startup in the fitness club scene in China, and you’re looking for investors and state-funded support.

As a relatively new startup, you most definitely won’t have various helpful data of your own.

By finding historical data like presented in this chart, you can easily convince others of the potential of your chosen niche.

Of course, you might need to research a bit deeper and find more examples in your niche, but this one is a great starting point!

Let’s call it historical data in niches.

By having such valuable information about your niche, you can add more trust, authority and, credibility to your business endeavor.

Imagine saying this:

“Our business is in the fitness club industry in China. After an estimated exponential growth in our first two years, we expect to be around a steady 22% revenue growth rate per year, which is above-average compared to the data from our competition.”

Now that’s a convincing statement.

Note: Be prepared for questions.

What makes you so sure that you can expect an above-average revenue growth rate?

Is your business more digital, convenient, accessible than others? 

When revenue growth rates are not reliable/steady

It’s easy to convince others if your numbers are correct.

But what if your niche is known for fluctuating growth rates?

As you can see, the numbers go uncontrollably from 16% to -0.5% with absolutely no linear structure.

This is a more complex situation that needs a specific approach.

While it can be good to show data from your niche so that people can acknowledge your depth of knowledge, research, and expertise, it might also be better to skip this.

But only if you don’t know how you can navigate yourself around it.

Or why these numbers fluctuate, and why this might be an opportunity for you.

Opportunity? You read it right.

By knowing why this unreliable revenue growth rate happens in your niche, you can specifically make your business stand out.

Take the current industry’s problem as your unique strength, and provide promising innovative solutions to be better than your competition.

Last but not least, let’s have a look at a more easy situation.

In the last example, we took the approach of fixing things.

It is finding something that’s not working and doing it better than all the others.

And with that approach, we can create immense value. 

But now, we seem to be in a market that’s steadily linearly growing.

As you can see, the german fitness market has constantly been growing in revenue since 2014.

Now your approach might not be a “fixing things” one, rather a “jumping on the train” one.

The jumping on the train approach fits well when you have data that shows something is working well.

You might try to figure out why this specific niche is working well and how you can reverse engineer it. 

Or how you can make it even better for your potential customers.

By this “jumping on the train” approach, you can take the industry’s growth as your base and differentiate your business from that after that growth happened.

This might look like this:

“It is known that our industry has a high demand for our service. Currently, the niche has experienced a steady revenue growth rate of 21% in the last five years.”

21% is good, right? 

But we want more. While we could rest on this number, we have a bigger vision. 

And an idea of how we can surpass the average standard growth rate and be superior to others.

Here’s how.

Sounds intriguing, right?

Ready for growth?

As you hopefully could see, there is a massive opportunity in the estimation of your revenue growth rate.

To get the most out of it, you need to get a thousand-foot view of all the possible factors and how they align with your business development strategy.

That’s where we can help you.

As experts for business and startup growth with strong experience in award-winning business plans, we can help you get those estimations right and in sync with your business goals.

Ready to grow? Reach out to us here to get a free consultation call.

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