How To Calculate Growth Percentage (With Examples)

By Indeed Editorial Team

Updated August 20, 2022 | Published July 26, 2021

Updated August 20, 2022

Published July 26, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Businesses need to keep track of their performance to monitor progress and ensure consistent growth. Growth percentage is one of the most simple and effective measures to assess business performance. Learning how and when to calculate your growth percentage can make it easier for you to determine your company's position and devise appropriate strategies. In this article, we discuss what growth percentage is, assess its importance, discuss the methods of calculating it, and explore using each method to determine growth percentage.

Related: How to Use an Annualized Growth Rate Formula (With Examples)

What is growth percentage?

Growth percentage is a calculation that measures the difference between two numerical values, typically presented as a percentage of the original number. It's also known as growth rate or percentage increase. Businesses use growth percentages to calculate differences in their revenue, sales, or market share.

Companies use growth percentages to track their performance and learn which areas require improvement and increased productivity. Countries also use growth percentages to track differences in relevant economic metrics. The growth percentage formula is simple and straightforward, making it popular among various entities, including companies and governments.

Related: How To Calculate Net Income for an Individual and a Business Organization

Why is growth percentage important?

Growth percentage is important because it accurately communicates how well your business is growing or declining. Keeping track of your growth percentage can help you spot business challenges before they become bigger problems. For example, if a business detected that their August 2019 sales were much lower than August 2018 sales, they can investigate why that happened. The cause may be a minor issue like seasonal changes or a more serious one like losing market share to another company. Either way, the growth percentage has alerted the business to a potential problem.

Using the growth percentage calculation may also help your business:

  • Encourage investors and other stakeholders with quantifiable results

  • Assess the effectiveness of existing business strategies

  • Determine new strategies for growth

Related: What is Quantitative Analysis?

Methods of calculating your growth percentage

You can calculate a company's growth rate with simple formulas, depending on the period you want to calculate and how many values you're calculating. The following describes different methods you can use to calculate your growth percentage:

Straight-line percent change method

The straight-line percent change method is one of the most popular methods to calculate simple growth percentage equations. This method is a straightforward formula, making it one of the easiest methods to calculate growth percentage. The straight-line method is best used when comparing values over a short period. A limitation of this method is the end-point problem, which means that it produces unreliable results for negative growth percentages.

Related: How to Calculate Straight-Line Depreciation (With Uses)

Midpoint method

The midpoint method uses averages to calculate the growth percentage. It's the more appropriate method for making comparisons over extended periods. The midpoint method avoids the end-point limitation and can reliably calculate negative and positive changes.

Average growth rate over time

This method tells you the average growth of your business records each year. It's best for calculating the percentage growth over several years. This method is longer and more complex than the others, but it gives reliable results for multiple years or projects. It's also called the compound annual growth rate formula (CAGR).

Related: How To Calculate Gross Income per Month for Individuals and Businesses (With Examples)

How to calculate growth percentage using the straight-line percent change method

Follow these steps to calculate the growth percentage using this method:

1. Learn the right formula

The formula for this method uses two values, which are the initial value and present value. The straight-line percentage formula divides absolute change by initial value, which gives you the growth rate.

(Growth rate = absolute change / original value)

2. Collect the values you need

The next step is to determine the period you want to calculate for and what you'd like to compare. For example, you can compare sales, profits, or your company's market share. Once you've decided n your values, write out the initial and present values you're using in your formula.

3. Find the absolute change

As you can see from the formula, you need to determine the absolute change before you can calculate the growth percentage. Absolute change is simply the difference between the initial value and the present value. The formula for absolute change subtracts the initial value from the present value.

(Absolute change = present value – initial value)

4. Apply the formula

Once you've determined the absolute change, apply your formula. Divide the absolute value change by the initial value to get your growth percentage value as a decimal. If the result is positive, this signifies an increase, while a negative result shows a decrease in growth percentage.

5. Calculate the percentage

The growth percentage is always a percentage, regardless of the calculation method you use. After applying your formula, multiply the decimal by 100 to get the percentage. This represents how much of an increase or decrease there has been from your initial value.

Example:

A retail store wants to calculate its percentage growth using the straight-line percent change method. In their first year of business, they sold 30,000 formal gowns. By their fourth year of business, they sold 46,000 formal gowns.

The first step is to find the absolute change, which is the present value – the initial value. The initial value is 30,000 while the present value is 46,000. Absolute change is 46,000 – 30,000 = 16,000. After finding the absolute change, you can apply the formula. That's 16,000 / 40,000 x 100. That gives us 0.5333 x 100, which equals a growth percentage of 53%.

How to calculate growth percentage using the midpoint method

Follow these steps to use the midpoint method:

1. Learn the right formula

The midpoint method formula requires you to know your initial value, present value, and the average of the two values. The formula divides the absolute change by the average of two values to give you the growth percentage.

(Growth rate = absolute change / average value)

2. Find the absolute change

The next step is to determine the absolute change. You can calculate the absolute change by subtracting the present value from the initial value. Your result can either be negative or positive, depending on the direction of growth.

(Absolute change = present value – initial value)

3. Find the average of both values

The midpoint method formula requires the average of the present and initial values. You can determine this average by calculating the sum of both values and dividing them by two (number of values).

(Average value = sum of initial and present values / 2)

4. Apply the formula

After calculating the absolute change and average value, input the variables into the formula and calculate the results. This formula produces a result in decimal form.

5. Calculate the percentage

After calculating the result, convert it to a percentage. Find the percentage by multiplying the number by 100.

Example:

A confectionery store wants to find its growth percentage using the midpoint method. The store made $15,000 in sales at the beginning of the business year. At the end of the year, they made $19,500 in sales.

The first step is to find the absolute change, which is the present value – initial value. In this case, it's $19,500 – $15,000 = $4,500. Next is to find the average of both values, which is the present value + initial value / 2. Here, it's 19,500 + 15,000 / 2, which gives us 34,500 / 2 = 17,250. Applying the formula, we have 4,500 / 17250 = 0.26. Multiplying that result by 100 gives us 26% as the company's growth percentage.

How to calculate growth percentage using the average growth rate over time

Follow these steps to calculate the average growth rate over time:

1. Learn the right formula

The formula for this method, also known as the compound annual growth rate formula, is a bit more complex, but with some practise, it can be as easy as the first two formulas. This method requires you to know the values for the years of comparison and the number of years between values. The formula divides the present value by the initial value. The resulting number is raised to the power of one divided by the number of years between the values. From that, subtract one to get the percentage of growth from the initial value to present value.

(Present value / initial value)1/NUMBER OF YEARS – 1 = percentage growth over time

2. Collect necessary values

The next step is to determine what values you'd like to compare and the resulting time period between the values. This could be a comparison of sales, profits or production numbers. Once you've determined these, write out the initial and present values you're using in your formula. You may want to use a chart to sort your values and minimize errors.

3. Apply the formula

Once you determine your values, you can apply the formula. Because it involves exponential math, you may want to use a scientific calculator. Input the variables into the formula and calculate the results. This formula produces a result in decimal form.

4. Calculate the percentage

After calculating the result, convert it to a percentage. Find the percentage by multiplying the number by 100.

Example:

A toy company made $300,000 in revenue when they opened. After 7 years, they made a revenue of $750,000.

Applying the formula in phases, we first get 750,000 / 300,000 = 2.5. Then 2.51/7 = 1.14. Then 1.14 – 1 = 0.14. Next, we multiply that by 100 to give an average growth percentage of 14% each year.

The model shown is for illustration purposes only, and may require additional formatting to meet accepted standards.

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