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What Is a Good Rate of Growth for a Small Business?

Last editedAug 20212 min read

Business growth is categorised in myriad ways, i.e., strategic, partnership/merger/acquisition, internal, rapid and organic. Some of these may be self-explanatory, even for the novice entrepreneur, although organic business growth may need further explication.

So what is organic growth in business? Essentially, organic growth refers to an expansion in response to the needs of a business. This may take the form of increased production, providing more services, occupying a larger space or adding to the sales team. Another example of organic growth is developing a new product targeted towards an existing customer base.

Read on to find out a little more about business growth, including the ideal growth rate for small businesses.

How to measure business growth

No matter what kind of growth you’re talking about, the growth of a business can be measured by the increase of a specific variable over a designated period of time. Variables include:

  • Revenue

  • Sales

  • Customer base

  • Cash flow

  • Market shares

It’s necessary to calculate the growth rate of your company in order to plan for the future. Decisions like the hiring of new employees and expansion are all driven by business growth projections. Small businesses often use revenue and new customers, or user growth rate, to measure business growth and – a little further down the line – market share.

Follow these steps to calculate the growth rate of your company:

  1. Choose a variable and determine the time frame

  2. Identify the starting value for the given time frame

  3. Identify the ending value for the given time frame

  4. Use one of the following formulas to calculate the rate of growth:

Growth rate = (end value/starting value) – 1 x 100%

Growth rate = (end value-starting value)/starting value x 100

What is a good growth rate for a small business?

There are around five stages of small business growth:

  • Existence

  • Survival

  • Success

  • Take off

  • Resource maturity

Furthermore, a number of factors are relevant for the success of growing businesses. In terms of resources, key factors include financials, personnel, systems, and business. In terms of ownership and management, goals, operational abilities, managerial abilities, and strategic abilities are key. Get these right, and your business may thrive.

But what sort of rate of growth should you be aiming for? Ideal business growth rates vary by the type of business and industry as well as the stage that the business is at in its development. In general, however, a healthy growth rate should be sustainable for the company. In most cases, an ideal growth rate will be around 15 and 25% annually. Rates higher than that may overwhelm new businesses, which may be unable to keep up with such rapid development.

The importance of a small business growth plan

A small business growth plan enables a company to identify targets and strategies for meeting short term goals, typically over the course of one or two years. Such plans are important to keep a company moving forward with increased revenue as well as get back on track when challenges arise, such as increased competition, low sales, or loss of customers.

Business growth strategies identified on a small business growth plan may include product and market development, market penetration and diversification. Other business growth strategies a company may choose to employ are strategic partnerships and acquisitions, franchising and improving efficiency.

Enterprises both small and large may need outside funding to realise their business growth plans, especially in the earlier stages. Independent investment companies, like the Business Growth Fund can help. In addition to providing capital, Business Growth Fund supplies expertise and strategic connections to support business in a variety of industries across the UK and Ireland.

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