Company growth rateLink to this section
Whether you’re a new or established company, growth is likely a big priority. A growing company is seeing that across the board in terms of number of customers, revenue, and team size.
Your company will have its own set of metrics when measuring your growth rate, which could include tracking recurring revenue or measuring how many new subscribers you’re acquiring.
By measuring your company’s growth rate over different periods of time (usually year-on-year), you can start to identify trends in your company’s financials and get a sense of if things are moving in the right direction.
In SaaS generally, the best way to measure your company’s growth is by an increase in ARR (annual recurring revenue) over time. However many may choose to focus on active users or other metrics.
What is a company growth rate?Link to this section
The growth rate of your company tracks specific metrics over a period of time. Shown as a percentage, your growth rate looks at different measures of growth (such as product sales, recurring revenue, or new customers).
When tracking your company’s growth rate, it’s important to use this rate as a comparative metric. That means you’ll likely compare your rate of growth over different time periods, such as month-on-month or year-on-year.
By tracking your growth rate over time, you can start to assess changes in your business and the impact it’s having on your bottom line.
How to measure your company’s growth rateLink to this section
There isn’t a single way of measuring your company’s growth rate. Why? Because the metrics you decide to track will depend on the type of business you’re running and what ‘growth’ means to you.
In most cases, SaaS companies will equate growth with an increase in recurring revenue or user growth. That means user acquisition and recurring revenue will likely be the metrics you’re using to track your growth rate.
As an example, the formula you’d use to calculate your revenue growth rate would be:
ARR Growth (%) = 100% (Current period ARR - Previous period ARR) / Previous period ARR
The same formula could easily be tweaked to suit the metrics you’re looking to track. Instead of revenue, you could sub in metrics such as active users.
What makes tracking this metric useful is being able to compare how this rate changes over different time periods. This allows you to keep tabs on how your growth rate changes over certain months, quarters, or years.
While there’s no ‘right’ or ‘wrong’, SaaS companies often find comparing growth rates in annual increments more useful than comparing growth month-on-month. That’s because seasonality can distort the growth rate of specific months of the year, offering an inaccurate picture of how fast a company is growing.
How to support growth in your companyLink to this section
In isolation, your company’s growth rate can only tell you about changes in your recurring revenue or the size of your user base.
But when paired with other metrics, you can start to use your growth rate as a springboard to inform where you invest your time, energy and resources.
- Focus on acquiring higher-value customers: if your revenue isn’t growing at the rate you’re expecting, it might be time to dig into how much value your customers are bringing into your company. By tracking metrics like Customer Lifetime Value (CLTV) and segmenting this by different user groups, you can start to understand the attributes of your highest-value customers and direct your marketing efforts toward those customers.
- Increase the value generated from your existing customers: acquiring new users isn’t the only way to support growth in your company. Extracting more value from your existing customers through upsells and cross-sells allows you to increase their CLTV, with the hopes of boosting the revenue you’re generating from your existing user base.
- Prioritize initiatives that improve your product and customer experience: while your growth rate won’t be able to tell you where your growth is coming from, it can pinpoint trends in your company’s overall user and revenue growth. If growth is stagnating, it could be worth revisiting your product, iterating based on user feedback, and improving the experience you’re providing.
Tracking your company’s growth rate is a helpful way to understand how your business is performing over different time periods. By deciding which metric is most useful to track (whether that’s recurring revenue or new user acquisitions), you can gain a better understanding of how your company is growing each month, quarter or year.
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