Some would say this is a good problem to have, but don’t allow it to unravel all that you’ve built. Below are a few processes by which you can determine whether or not your company is experiencing sustainable growth.
Sales Growth Number
The first step is to view your sales from a growth standpoint – pretty basic stuff. You just need to get a feel for how your sales revenue numbers compare to what they were last year, or last quarter, or last month. The formula below will calculate your Sales Growth Number. Y1 will refer to the previous year, and Y2 will represent the current year.
Sales Growth Number = x 100
This calculation will give you a quick snapshot of your company’s sales growth over a given period of time. Adjust it for months, quarters, or years as it fits your purpose. It’s recommended that you plot this data on a graph, and as you expand the period of time you are analyzing, these numbers will become more significant, and more telling of your company’s overall growth trend.
Affordable Growth Rate
The next step is to calculate your Affordable Growth Rate. We’ll then be able to determine how fast your company can grow and still sustain its own growth. To calculate your Affordable Growth Rate:
Affordable Growth Rate = (Company Net Income / Y1 Retained Earnings) x 100
If your company’s Sales Growth Number is larger than the Affordable Growth Rate, you could anticipate running across some problems in the future. Your organization may be experiencing unparalleled growth, raking in sales, piling up cash in the coffers – but if you are unable to sustain this growth, you could run into issues.
The company will need to finance more assets, receivables, and inventory in order to make this growth more sustainable.
There’s never anything wrong with striving for continual company growth. That’s the goal of most companies, and it’s a good one. But, you must be sure that the growth you are experiencing is not unintentionally cannibalistic, or one that will overextend your own capabilities.
Have you downloaded the Sales Territory Planning and Sizing Calculator? This tool helps plan how you can most effectively balance, align, and optimize your sales territories.