Understanding the performance of your business or investments is crucial to making informed decisions. One valuable metric for evaluating growth is the Year Over Year (YOY) calculation. This comparison helps you track progress, identify trends, and make strategic moves based on your findings. In this article, we will provide a step-by-step guide to calculating YOY growth.

What is Year Over Year (YOY) Growth?

Year Over Year (YOY) growth is a measure of the percentage change in a value between two comparable time periods—one typically being the current period and the other being the same period in the previous year. This method accounts for seasonality, provides relevant comparisons, and paints a clearer picture of your organization’s performance.

Step-by-Step Guide to Calculate YOY Growth

Calculating YOY growth is a simple process that requires only basic arithmetic. Here’s a step-by-step guide:

1. Obtain the data: Collect values for the metric you want to compare for both the current period and the same period in the prior year. Let’s call these values ‘Current’ and ‘Previous.’

2. Calculate the difference: Subtract the Previous value from the Current value—this represents the difference between these two data points.

Difference = Current – Previous

3. Divide by previous year value: Divide the Difference by the Previous value—this represents how much growth you’ve seen compared to last year.

Growth_Ratio = Difference / Previous

4. Convert to percentage: Multiply the Growth_Ratio by 100 to express it as a percentage.

YOY_Growth = Growth_Ratio * 100

5. Interpret results: Analyze your YOY growth percentage in light of your company’s goals and market performance.

Example: Calculating YOY Sales Growth

Let’s say you want to calculate your company’s sales growth from this year compared to last year. In 2020, you made $500,000 in sales, and in 2021, you made $600,000 in sales.

Step 1: Obtain the data:

Current (2021) = $600,000

Previous (2020) = $500,000

Step 2: Calculate the difference:

Difference = $600,000 – $500,000

Difference = $100,000

Step 3: Divide by previous year value:

Growth_Ratio = $100,000 / $500,000

Growth_Ratio = 0.20

Step 4: Convert to percentage:

YOY_Growth = 0.20 * 100

YOY_Growth = 20%

Step 5: Interpret results:

Your company has experienced a 20% increase in sales year over year.

Remember that analyzing YOY growth should be just one facet of your overall evaluation process. It’s essential to consider other performance metrics and industry benchmarks when crafting your organization’s growth strategy. Understanding how to calculate YOY growth and interpreting the results empowers you with valuable insight into your business’ trajectory and enables you to make informed decisions in pursuit of success.