Year-over-year performance – how do you measure it?

My experiences in fast-growing companies revealed a variety of ways people measure growth.  The one that always gives me heartburn is year-over-year growth.  It is frequently stated as a ratio of your current performance to same month or quarter in the previous year.

Here what makes this challenging:

  • What happened last January?  Any big  customers wins? Or losses?
  • Is your business seasonal?  Did any business slip a month or two?
  • Any economic shocks (think last October when everything stopped for a few days)
  • How many days in that month again?  (Yes, last February had 29 days)

Beware of these comparisons.  I prefer measuring the change in the annualized or quarterly run rate.  These numbers are less susceptible to one-time events and/or optimistic interpretation.

To quote a Wall St. friend, we live in a second derivative world.  The change in the growth rate both thrills and scares people.  I am suggesting that you look at the underlying numbers carefully and make sure they are not full of special factors that skew results.  Most businesses have a natural rate of growth based on its core customers and markets.  Talented managers can change the slope of the curve while pretenders manipulate the numbers.  Be careful out there.

Author: Frank Days

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