How To Calculate Growth Rate Using Different Methods

By Indeed Editorial Team

Published 23 August 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.

It is essential to know how to calculate growth percentage to understand the value of your assets and investments. A rate of growth formula can help you calculate the growth rate or percent change. By calculating growth rate, you can measure the percentage change happening over time. In this article, discuss how to calculate growth rate, learn different growth rate calculation methods and look at some growth rate calculation examples.

What is growth rate?

Growth rate is a measure of how your assets, businesses, investments or portfolios increase in value over a specific period. This value can help you understand how different investments may perform over time. You can then make reasonably accurate predictions of the revenues you can expect from each of your assets and investments.

Why is growth rate important?

Growth rate is important because it lets you find out if your assets or investments are declining or increasing over time and use that information to predict expected growth. You can calculate growth rate with the growth rate equation. By monitoring growth rate, you can decide to continue with the current investment plan or adopt a new strategy based on your organisational goals.

Related: What Is Business Development? Definition and Skills

Growth rate calculation methods

You can use three growth rate formulas for your calculations:

Straight-line percent change

With this formula, you can find out basic growth rates. These may not be useful for making comparisons with other growth rates. The limitation of the straight-line percent change method, also known as end-point problem, is that it does not produce uniform results if the growth rate is negative.

Midpoint

With the midpoint method formula, you can find the absolute change and average value, then find the growth rate by dividing the absolute change by the average value. The midpoint method gives uniform results regardless of whether the growth rate is negative or positive. By using it, you can avoid the end-point problem that occurs with the straight-line percent change method.

Average growth rate over time

You can compare the growth rate that takes place in two years by using the straight-line percent change and the midpoint methods. However, if you have to compare the changes in growth rate that take place over many years, it can help to calculate the annual average growth rate. You may want to use this method when you're proving your company's potential to an investor.

Steps to use straight-line percent change

Calculate growth rate with these steps:

  1. Use growth rate formula: It is necessary to know the original value and divide the absolute change with it. The formula is Growth rate = Absolute change / Previous value

  2. Calculate the absolute change: Knowing the original value and the new value is essential for finding the absolute change. The formula is Absolute change = New value - Previous value

  3. Use the original value for dividing the absolute change: You can get growth rate by dividing the absolute change by the previous value. The formula is Growth rate = Absolute change / Previous value

  4. Find percent of change: To get the percent of change, you can use this formula the formula of Percent of change = Growth rate x 100

Steps to use midpoint

You can find growth rate with the following steps:

  1. Use growth rate formula: It is necessary to know the average value and use it to divide the absolute change. That can give you the growth rate. The formula is Growth rate = Absolute change / Average value

  2. Get the absolute change: To find out the absolute change, it is essential to know the previous and new values. The formula to follow is Absolute Change = New Value - Previous Value

  3. Calculate the average value: Adding the previous and new values and dividing the figure you get by two can give you the average value. The formula is Average value = (Previous Value + New Value) / 2

  4. Use average value for dividing absolute change: Dividing the absolute change and average value can give you the growth rate. The formula is Growth rate = Absolute change / Average value

  5. Find percent of change: Use this formula to get the percent of change: Percent of change = Growth rate x 100

Steps to use average growth rate over time

The following steps will help you to calculate growth rate:

  1. Use growth rate formula: Find growth rate by dividing the current value with the previous value, multiplying the result with 1/N and subtracting one from that result. The N in the formula stands for the number of years. The formula is Growth rate = (Current value / Previous value) x 1/N - 1

  2. Subtract the previous value from the current value: Get the difference between the previous and current values by subtracting the previous value from the current one. The formula is Current value - Previous value = Difference

  3. Multiply the difference to the 1/N power: N stands for the number of years. The formula is:(Difference) x 1/N = Result

  4. Subtract one from the result: You can use the following formula to get growth rate: Growth rate = Result - 1

  5. Find percentage change: The following formula can help you to find percentage change: Percent change = Growth rate x 100

Growth rate calculation examples

The following examples can show you how to use different calculation methods to find growth rate:

Straight-line percent change example

A company sold 650 condensed milk cans in the current year and sold 500 condensed milk cans in the previous year. Find the growth rate for the number of condensed milk cans it sold over a two-year period:

  • Growth rate = (650-500)/500

  • Absolute change = 150 (650-500)

  • Growth rate = 0.3 (150 / 500)

  • Percent change = 30% (0.3 x 100)

If you change the number of cans sold in the current year to 500 and to what was sold in the previous year to 650, you get the following:

  • Growth rate = (500-650)/650

  • Absolute change = -150 (500-650)

  • Growth rate = -0.2307 (-150 / 650)

  • Percent change = -23.07% (-0.2307 x 100)

Midpoint example

Here is how to calculate the midpoint given the example above:

  • Growth rate = [(650 - 500) / (650 + 500)/2] or [(500 - 650) / (650 + 500)/2]

  • Growth rate = (150 / 575) or (-150 / 575)

  • Growth rate = 0.2608 or -0.2608

  • Percent change = 0.2608 x 100 or -0.2608 x 100

  • Percent change = 26.08% or -26.08%

You often only need to use the average value as the denominator to get positive and negative growth rate calculations that are exactly the same. By using the midpoint method, you can get a uniform growth rate calculation result.

Average growth rate over time example

To calculate the average annual growth rate over several years, you can use the method of average growth rate over time:

List the number of condensed milk cans sold by the company in the past four years:

  • 2018 = 350

  • 2019 = 450

  • 2020 = 500

  • 2021 = 650

Next, calculate the company's average annual growth rate.

So, if the present value is 650, the past value is 350 and the number of years is 4, you get:

  • Growth rate after 2018: (450 - 350) / 350 x 100 = 28.57%

  • Growth rate after 2019: (500 - 450) / 450 x 100 = 11.11%

  • Growth rate after 2020: (650 - 500) / 500 x 100 = 30%

Average growth rate over time = (28.57% + 11.11% + 30%) / 3 = 23.22% per year

How do you calculate the growth rate of a company?

You can calculate the growth rate of a company using the following factors:

Revenue growth

You can calculate revenue growth by checking if the company's sales have increased or decreased over a few quarters or years. The percentage of revenue shows how much the company revenues have expanded or shrunk in a given period. By calculating the growth rate equation on a monthly, quarterly or annual basis, you can understand the positive and negative changes that affect the company and its financial health.

Related: What Is Revenue? Definition, Types, Examples and More

Market share growth

The portion of the market that the company or its products control is known as its market share. To discover the company's basic market value and to calculate its market share growth rate, it is essential to find out the market size and the total sales revenue. Calculating market share growth helps you to determine if the company's business can be sustainable in the long term so you can plan the right strategies to improve sales.

Related: Business Strategy Components and Examples

User growth rate

The user growth rate percentage shows how many new paying customers the company has gained every month. A positive trend indicates that the company's products appeal to its target customers and its marketing and sales strategies work. If you notice a negative user growth rate, it may mean that you need to improve or change products and strategies.

Related: Customer Satisfaction: How To Measure and Tips for Improvement

How do you calculate growth rate in Excel?

You can calculate growth rate in Excel by listing the years in column A and their values in column B of a spreadsheet. If you have listed from A2 to A9 and B2 to B7, the formula for calculating growth rate is:

=GROWTH(B2:B9,A2:A9)

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