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Guide to Revenue Growth & Margin Growth

Chris Kennedy-Sloane< Chris Kennedy-Sloane April 26, 2023

Revenue and margin growth are vital metrics to analyze your company’s financial health. Learn why it’s important to know how to calculate revenue growth and how to break it down in this guide by Vendavo Business Consultant, Chris Kennedy-Sloane. 

Originally Posted: August 9, 2021
Last Updated: April 26, 2023

Revenue and margin growth are two of the most important metrics when it comes to analyzing the health of a company. It lets you determine the following: 

  1. Sales are increasing 
  1. The costs of goods and services are decreasing while selling prices are getting higher 
  1. You are acquiring new customers 
  1. A combination of the above.  

All of these scenarios are obviously a good thing. 

What is Revenue Growth? 

Revenue growth represents how sales have increased or decreased between two defined periods of time. Revenue growth is very easy to calculate: take the latest revenue figure and subtract the previous revenue figure. Then, divide the result by the previous revenue figure and you have your result. 

Revenue Growth = Current Revenue – Previous Revenue


Previous Revenue

So, let’s say a company saw $1 million in revenue in Q1, and $1.5 million in revenue in Q2, then the company has seen a revenue growth rate of 50% from Q1 to Q2. 

Just as importantly, revenue growth can also be negative – telling you that your company is making less money than before. So, a company that saw revenue of $1 million in Q1 and revenue of $500,000 in Q2 saw a revenue growth rate of -50%.  

It’s important to note that factors like seasonal trends could be behind these changes and should be taken into account when comparing one period with another. 

Why is Calculating Revenue Growth Important? 

All businesses measure revenue growth to some degree, but it’s often something that’s done because it’s expected. Taking a moment to think about why we should measure revenue growth can add some value to an otherwise procedural process. 

  1. Of course, one of the primary reasons is to measure performance. This is the most classical use for measuring revenue growth and is probably what most people in business are most familiar with. Quarterly earnings statements are the form of measuring revenue growth that’s most readily visible publicly. Getting this right is of course, key.  
  1. More advanced businesses will also use revenue growth measures to understand performance and take actions. This is where more complex measurements with more detail begin to show fruit for businesses, allowing actionable information to impact future performance on the basis of correcting past mistakes. 
  1. Alongside the understanding of performance comes the ability to tie revenue growth to other business metrics. With a really in-depth view, individual business units, departments, or even employees can be incentivized to drive growth in the ways businesses see as being most attractive, and to manage investment in areas of the business that are most effective. 
  1. Finally, without an in-depth understanding of revenue growth it wouldn’t be possible to have an accurate comparison of performance to a business’s peers. This can indicate market share growth, or decline, and prevents taking action in a vacuum. There’s a reason races are competitive rather than individual events! 

However, growth – whether related solely to revenue or to margin growth – can be deceptive. It does not paint the whole picture and can often be misleading. Instead of taking revenue and margin growth at surface value, it’s best to look under the hood to see what’s driving them, and what these metrics might not be telling you.  

Breaking Down Revenue Growth 

Truly understanding revenue growth isn’t as simple as measuring your sales or number of new customers month on month or quarter on quarter. However, growth will look different and can be attributed to different factors depending on your business model. For example, in subscription-based businesses where revenue is recurring, customer churn plays a bigger role than almost any other KPI. 

There are numerous potential factors behind revenue growth, and looking at each of these factors in closer detail can give you a more accurate picture of how well or otherwise your company is performing. Looking at each factor individually will tell you which departments are performing well, and where there is room for improvement.  

Strategies to Increase Revenue Growth 

There are various strategies that can drive up revenue, some of the most common are:  

  • Free Trials: Free trials exist for the sole purpose of getting customers’ attention. Once you gain that early traction, it’s easier to turn a customer into a long-term source of revenue. 
  • Marketing: Investing a greater percentage of your budget into targeted marketing means getting your product or service in front of a wider audience of committed buyers.  
  • Referrals: These are normally incentivized with a giveaway or reward, but are a good way of consolidating your existing customer base as well as acquiring new ones. 
  • Discounts: Discounts give new customers an incentive to start buying from you and existing customers a reason to continue the relationship.  
  • Upselling and Cross-selling: Existing customers and prospects at the bottom of the funnel are often an untapped source of revenue because so much importance is given to attracting new ones.  

What Can Cause a Revenue Decrease? 

You’ve run promotions and dedicated time and resources into marketing efforts, but revenue is still trending downwards – why? When it comes to revenue decreases, there are a few factors (both long and short-term) that can be in play. Here’s a look at some of the most common. 


Churn is a metric that applies to companies that work on a subscription model and similar. One example is a SaaS company offering access to web-based software for a monthly fee. Churn is the metric that tells you how many of your subscribers are canceling their subscriptions and, for companies that operate on this model, it’s a metric that should not be taken lightly. 

If you have high churn levels, then your company could be in bad shape regardless of any revenue increases. If your churn levels become high enough then the number of new customers you attract won’t make up for those you are losing. For a lot of businesses, it’s a better idea to focus on reducing churn levels rather than focusing on attracting new customers that you’re likely to lose in the short-term anyway. 


Another potential cause of revenue loss is competition. New players can enter the market at any time and potentially attract your customers, and your revenue streams along with them. It pays to monitor the market and keep an eye on competitors, new and old, to see what their moves are.  

Although there is a chance of other companies taking your customers, don’t forget that it can work in the other direction as well. Look for weaknesses to exploit and you could see a considerable boost in your own revenue streams. 


Seasonal differences are another potential reason for revenue loss from one period to another. If you’re selling summer gear, for example, then it only makes sense that sales will drop away once the summer is over. 

To get a more accurate assessment of performance, it might be more beneficial to look at the corresponding previous period rather than the period that has just passed. For example, although your sales might drop when compared to the summer that has just passed, they might still have improved over the previous fall. 

Often, businesses will choose relative periods such as a ‘Moving Annual Total’ or MAT date period to allow comparisons to be made each month (Or even each week), with the comparative previous 12 months or 52 weeks advancing each period to ensure seasonality is removed from the equation.  

What’s a ‘Good’ Revenue Growth Rate? 

Well, firstly and most importantly, revenue growth rate should be positive! 

Earlier we mentioned the ability of revenue growth to allow accurate comparison of growth to peers. It’s important to note that this comparison should also be meaningful. A ‘good’ revenue growth rate can be defined in a number of ways, but most commonly can use competitor’s publicly available data to ensure that your growth is meeting a number of criteria. 

  • Your revenue growth exceeds the growth of the ‘total available market’ or TAM, meaning you are gaining market share. 
  • Your revenue growth exceeds the growth of closely comparable competitors with similar offerings, meaning you are better capitalizing on your potential value
  • Your revenue growth exceeds or meets the increase in your cost of goods sold (COGS) and, in most cases, increases in any investment in the business or business unit in question. Meaning that your margins are increasing or remaining static.  

In the end, these measures are useful but arbitrary unless bounded by strategy. That’s why the next step is to set your growth targets. 

How to Set Your Revenue Targets 

Revenue growth as a stand-alone figure will often mean little without context. Even what appears to be impressive growth at first glance might be less impressive when you take into account factors like investments into acquiring new customers, and seasonal changes. 

Identify the Revenue Sources Most Important to You 

To get a better picture of how your company’s revenue metric is really performing then set targets to achieve. Identify the revenue sources most important to you. See how well they are doing compared with how well they should be doing to keep the business healthy.  

Set KPIs for Clear Measurement 

Set KPIs to make it clear what your targets are. If you aren’t reaching those targets then you know where you need to improve to keep your revenue growth healthy.  

Determine Whether You Need to Make Marketing Changes 

Is your online marketing not driving as much revenue as expected? Speak with your marketing department if you have one and ask them to identify why, or consider hiring the help of professionals if you haven’t done so already.  

Seek Out New Revenue Streams 

Also remember that you can look for brand new revenue streams to bring more money in. It’s fine to be creative and you can look for inspiration from what your competitors are doing. When looking to competitors for ideas you might also notice gaps that they are not exploiting, giving you an opportunity to take advantage. 

Limit Losses of Existing Revenue Streams 

Last but not least, limiting losses of existing revenue streams can be just as important as generating more. If you do start losing your existing revenue streams, then you might get to the point where any new revenue streams you generate can’t keep up. This may potentially cause you to start making a net loss regardless of how much new money you are bringing in. 

Common Pitfalls When Measuring Revenue Growth 

We’ve already mentioned the risk of high seasonality variance impacting the validity of measuring growth over shorter periods, like a quarter-on-quarter comparison for a business with high holiday sales in calendar Q4 versus a depressed Q1, but there are a number of other potential issues to watch out for when measuring revenue growth.  

There are the classics such as poor data quality impacting the validity of the comparisons, or as you get more discreet with your revenue growth bridge even accounting practices can cause issues.  

Returns, bookkeeping corrections, and other financial practices can add further complexity that needs to be accounted for.  

These all pale in comparison though to Black Swan events which can have a real impact on the ability to measure revenue growth. Of course, most recently we have seen the Covid-19 pandemic causing huge revenue falls in some industries like hospitality, and massive increases in others like life sciences. How can you measure growth in these scenarios?  

In cases like this, it’s important to attribute growth or decline to the particular black-swan event in question so that revenue growth can be reported ‘with’ or ‘without’ the event’s effect, or perhaps to compare to an unaffected prior period, say 2 or 3 years prior rather than 1 year prior, in order to remove the confounding effect.  

How to Calculate Revenue Growth 

At its simplest level, Revenue Growth measurement has an uncomplicated formula, and in percentage terms as it is most commonly measured looks like this: 

Revenue Growth = (Current Period Revenue – Prior Period Revenue) / Prior Period Revenue x 100

The Role of Revenue in Margin Growth 

Revenue growth and margin growth are often talked about together, and with good reason. Your margin is ultimately a byproduct of your revenue. It represents how much capital your business retains for itself after the production costs are taken into account. 

You’ll be familiar with the two ways of looking at margins – net and gross. While net margin gives a more definitive analysis of profitability, gross margin is the figure most closely related to revenue and the cost of goods sold (COGS).  

Net margin = Total revenue – COGS, wages, company expenses, operating costs, etc.

Gross margin = Total revenue – COGS

Explaining Margin Growth

Margin growth is a simple enough concept; having a high total revenue and a high gross margin will help to achieve a higher net profit margin. But that is not the only factor that can impact the margin. To further explain the changes with a margin bridge analysis

In the past businesses have sought to reduce costs by focusing on individual parts and suppliers. The theory is, that if the costs that go into creating a product can be decreased, profitability will go up. The thought process may be right, but the execution is often wrong.  

Constantly finding cheaper suppliers or aggressively negotiating discounts are temporary fixes only, plus the time and effort that goes into these deals outweigh any benefits. Instead, businesses need to focus on streamlining their processes and making small adjustments where they can in order to facilitate long-term decreases in COGS and increases in margin growth.  

Specifications & Material Costs 

Lowering COGS comes down to controlling what can be controlled – this means focusing on direct costs. Undoubtedly, one of the largest direct costs is materials. However, cutting costs on a component-by-component basis isn’t sustainable. Taking a more holistic approach ensures the quality and functionality of a product aren’t compromised.  

In other words, the requirements and expectations of customers and the specifications and functionality of a product should align. For example, there is little point in pumping money into the materials and larger components needed to produce a commercial plane that can go above 900 mph if, in practice, it never reaches above 500.  

Offshore Manufacturing 

While automation has led to great improvements in efficiency, waste reduction, and decreased labor costs, off-shore manufacturing still proves to be the biggest cost-cutter. 

Outsourcing production is a tried and tested strategy. China, Taiwan, and Vietnam offer lower labor and utility costs which result in savings that often outweigh the added shipping costs. That said, the high upfront costs and the risk of unpredictable fluctuations in currency are why it’s almost exclusively larger enterprises that choose it.  

On-demand Manufacturing  

Inventory costs also contribute to COGS. Deadstock and excess inventory, therefore, represent wasted capital. This is why retailers switch over to on-demand production strategies. This ensures products are made to order, once payment has already been received. Think of a print-on-demand service like Redbubble or Printify – these businesses begin the production process once an order has been submitted.  

Supplier Negotiations 

Above we mentioned the wrong way of approaching supplier relationships. Aggressive price negotiation tactics are too often used by businesses looking for a discount. The success rate can be greatly improved with a more strategic approach to price negotiations. A business should know exactly what their current manufacturing, material, and labor costs are in order to know a realistic discount figure.  

Relationships also come into play here. Co-operative relationships between retailers and suppliers are more common in industries such as car manufacturing where it’s normal to choose one supplier for the long term. However, to get the best benefits and deals from suppliers, it’s important to cultivate partnerships.  


Achieving revenue and margin growth requires a strategic approach that balances price optimization, product mix management, and sales enablement. Understanding how to calculate and break down revenue growth is important for measuring performance, tying revenue growth to other business metrics, and making accurate comparisons to peers. However, it’s important to look beyond surface-level growth numbers and examine the factors driving them to get a more accurate picture of a company’s performance. By delving deeper into the underlying factors behind revenue growth, businesses can identify areas of improvement and take actionable steps to achieve sustainable growth.  

At Vendavo, we help companies transform their pricing and margin strategies through cutting-edge technology and industry expertise. Contact us today to learn more about how we can help you drive profitable growth.