What rate of annual sales growth would make your company a stand out? A solid performer? At risk?
The answer is “it depends.” It depends on three variables. Let’s look at those variables, so you can determine the annual sales growth rate that makes the best sense for your company.
Annual Sales Growth Calculation
First make a note of your company’s revenue/sales for the most recent 12-month period (May 1, 2018-April 30, 2019) and for the 12 months prior to that (May 1, 2017-April 30, 2018). No need to go to your fiscal year end. For illustrative purposes, let’s assume sales as of 4/30/17 were $500 and sales as of 4/30/19 were $600.
Calculate the annual rate of growth as follows:
600-500 = .02 x100=20%
How much growth should you aim for?
There is no consensus that a specific annual rate for sales growth is right for all companies. The three variables will affect your company’s rate of growth and what is realistic as a goal for the coming year.
Company age: Once companies are established, typically by year 3, they could set some aggressive annual sales growth goals because young companies have many untapped opportunities. These aggressive goals make sense for 5 years or so. During this time there’s many opportunities for expanding the customer/client base; bringing new products and services to market; and building an ownership culture with the company’s employees. Owners typically are eager to reinvest company profits in order to provide funds for growth and/or reduce debt. An annual sales growth rate of 15-25% is within the realm of possibility.
At age 8 or so, companies often find themselves on a sales plateau. It’s harder to bring in new customers, and creating innovations and improvements fall to the wayside in the crush of fulfilling current obligations. The established company culture or mood is comforting and also lacks the urgency of the earlier years. Annual growth rate may be set at 10%.
Beyond 15 years, achieving the annual rate of growth may require leadership changes, serious new levels of investment, and revitalization. Depending on the industry, the company may find its offerings outdated or even off the market. Annual sales growth rate is likely to be 5-8%.
Revenue model: The three most common revenue models are fixed fees or prices, which reflect the value to the buyer; hourly billing; or cost-plus, which is your total cost for a product or service, plus a margin for profit. There are serious limits to hourly billing rates and the cost-plus model. These limits will inhibit your annual sales growth rate.
Position in the buyers’ minds: A company that is Number One in the minds of its buyers will have the best opportunity of meeting higher annual sales growth goals. Being Number One means buyers are not looking elsewhere; they are immune to the competition; and they will be early adopters of anything new you offer them. Positioning as Number One is the best tactic for every company to ensure annual sales growth rates are higher than the other factors might suggest.
The owner’s mindset also affects the company’s annual sales growth goals. Higher annual sales growth goals feel challenging and risky. They require more investment, more creativity, more deviation from the norm. They may be beyond the owner’s expertise and confidence and require contributions from an outside expert.
As every owner knows, most things worth achieving come with risk and discomfort. They wouldn’t be business owners if they didn’t have that in them.
Set Your Annual Sales Growth Goal Today
Take into consideration your company’s age, your revenue model and the position you hold in your buyers’ minds. Setting an annual revenue growth goal is as much art as anything. I think it’s more likely that the right number comes from a hunch than from the data.
Set the goal, using May 1, 2019 as the start and April 30, 2020 as year-end. What is it? Is it 15-25%, 10% or 5-8%.
Then, and this is a huge next step, write down a plan. What actions are needed, what resources are required (people, money, time, marketing, sales, product development, delivery, customer service) and what benchmarks will you use to keep track?
Your actual annual sales growth outcome is the result of what you put in. Put in the thoughtfulness about the right goal, put in the resources, and the owner mindset and be obsessed with tracking your benchmarks, and on April 30, 2020, you will achieve that annual sales growth rate you have just set.
SPECIAL NOTE: Years ago, I committed to practicing what I preach about bringing in outside expertise to give me guidance, support and sometimes get me out of a rut. I’ve had the pleasure of working with numerous wise people who have helped Trivers Consulting Group reach our 20th anniversary year. Just recently I was speaking with one of these experts when her line of questioning was like a slap upside the head—in a good way, of course! She jump-started my thinking about how the age of a company impacts all the decisions that company makes. I’ve known this inside my head, but never before put the ideas to paper. Look for more on the impact of company age over the coming months.
In the same vein, if you’re wondering what else you can bring to the forefront to help your company achieve your target annual sales growth rates, let me know. I would love to hear from you. 703-801-0345.