If you are a business owner or marketer, it is advisable to measure how client purchasing behavior has changed over the years. You can use this measurement to evaluate whether your target audience has responded to specific marketing efforts or campaigns. To better understand the performance of your business, you should know how to calculate the percent change and value dollar growth of your business.
Imagine you are a mini pie baker and you have noticed that your business started to thrive during the pandemic. You started selling your pies on social media and saw a positive trend in the number of pies sold. First, however, you want to measure how much sales increased in the last year.
To do this, you should utilize a percent change calculation. Percent change is equal to the change in volume over a period divided by the original volume, then multiplied by 100.
In 2019 you sold a total of 900 pies, and in 2020 you sold 1600 pies. Therefore, the calculation would be as follows:
(New volume sold – Original volume sold/Original volume) * 100 = Volume percent change
700/900 *100 = 77.78%
Based on the percent change calculation, your pie business grew by nearly 78% between 2019 and 2020. You are doing great!
Value Dollar Growth
Suppose that to sell more pies during the pandemic, you reduced the price of your pies. In 2019, you sold each pie for $6.99, and you introduced a special price of $4.99 during 2020. Although your volume increased based on the volume percent change calculation shown above, your value may not have grown as much due to the price reduction.
Let’s first figure out the percent change in price:
(New price – Old price)/Old Price * 100 = Price percent change
($4.99-$6.99)/$6.99 * 100
-$2/$6.99 * 100 = 28.61%
Based on the calculation shown above, you reduced the price of your pies by nearly 30% in 2020. Although this might have helped boost sales, the total value gained from these sales may not be worth the price reduction. To determine this, you must perform a value dollar growth calculation.
First, multiply 2019’s volume of pies sold by 2019’s price:
2019 Volume * 2019 Price = 2019 Value
900*$6.99 = $6291
Now, multiply 2020’s volume of pies sold by 2020’s price:
2020 Volume * 2020 Price = 2020 Value
1600*$4.99 = $7984
Now that you have the value for 2019 and 2020, conduct the percent change calculation once more:
(New value – Old value)/Old value * 100 = Price percent change
($7984-$6291)/$6291 * 100
$1693/$6291 * 100 = 26.91%
Congratulations! Based on the example, your pie business still experienced a 26.91% increase in value. Your sales increased so much that your value also increased despite your price reduction.
Whenever the volume growth is more significant than value growth, this represents a price decrease, and when value growth is greater than volume growth, this represents a price increase. This checks out in our pie example. The volume growth (77.78%) is considerably more significant than the value growth (29.91%) as there was a price reduction in 2020.
Consider using these basic calculations on your own business to determine general trends over recent periods. It is a simple calculation that does not take a lot of energy but can be helpful to evaluate the health of your business and the effect of your marketing efforts on sales and business value. Try it out!