Today, businesses track so much data. But that data is, in and of itself, virtually useless. Getting stuck in small-picture thinking can lead decision-makers to err.
Context is king: if you’re analyzing your business on merely a monthly basis, you might miss the big picture and draw inaccurate conclusions.
So, the question that begs itself is: how can you gauge your success on a more appropriate (aka longer) timeline?
The answer is simple: Year Over Year growth.
Year Over Year growth is a key performance indicator (KPI) that compares growth in a smaller period of time (e.g. a month) against a comparable period (e.g. that same month in the previous year). This, of course, explains the name.
When compared to standalone metrics on smaller timelines, Year Over Year growth gives you a picture of your performance without volatility, seasonality, and other factors that could otherwise distort your insights. Ultimately, you’re left with a clearer picture of what you want to see.
That’s why this is often a key metric in analytics across industries.
When you compare numbers to larger sample sizes and comparable periods, you’re left with a more accurate, impactful measure of performance. You’re also less subject to the effect of data points that might be distorting the truth.
Imagine you want to track, for example, analytics in the retail industry. Leveraging Year Over Year growth analysis means that you all but eliminate seasonality from that analysis. Since most retail companies often see large spikes and dips around the holiday season(s), looking at those figures in isolation would leave you with an indication of (false) growth. Those figures didn't accurately convey growth over time if they return to baseline levels after the high season(s).
Comparing Year Over Year gives you a more accurate picture of that baseline and the history behind it, meaning you’re able to make more informed, data-driven decisions that ultimately drive more sustainable long-term growth.
While Year Over Year metrics are great, it's also important that they be combined with complementary metrics (e.g. month over month analysis) to provide context for different aspects of yearly growth that deepen and expand your understanding of the state of your business.
And, of course, Year Over Year growth is about a lot more than revenue. You can measure virtually anything, from conversions to sales variability and everything in between.
Okay, so now that we understand Year Over Year growth, let’s look at how to calculate it. Fortunately, it’s quite simple:
That’s it, you’re done!
Formula for Year Over Year Growth
[(Current year earning - Previous year earning) / Previous year earning ] * 100
It’s important to remember that Year Over Year growth can be a beneficial calculation for virtually any industry or use case. But, again, other timeline measurements can also be impactful in giving you a clear view of performance (such as month over month or quarter over quarter growth).
Year Over Year growth helps compare growth over the previous year and is an excellent statistic to utilize if you want to mitigate volatility when analyzing success. It negates seasonality, smoothes that volatility, is easy to calculate, and gives you a comparison that’s relatively straightforward to make sense of when put in percentage terms.
While helpful, it can leave important information out; Year Over Year growth is only one component of a thorough, impactful analysis. It doesn’t offer much information unless used with other metrics.