How to Calculate Your Ecommerce Growth Projections

If you’re ready to make big moves in your business, you’ll need to know your ecommerce growth rate projections. This can help you make informed decisions about what you can and can’t afford. 

While this may feel a bit like shaking a magic 8 ball and asking it if your sales are going to double next year, you should still try and calculate these projections. It can help you grow your business in a healthy and strategic way. Which in turn, creates stability for your overall life and the life of your employees. 

Here’s how to calculate your ecommerce growth projections. 

Important Terms 

• Growth Projections: Estimates about various aspects of your business like sales, market share, and customer base over a specific period of time. 
• Sales: The amount of money you made based on the total number of products or services that you sold. 
• Expenses: Your overall cost of doing business, which can include materials, labor, marketing, etc. 
• Profit: Your total sales minus your overall expenses.  
• Demand Forecasting: A type of forecasting determined by historical inventory data to predict your future sales.
• Stockouts: Understocking and running out of inventory when there is still demand.
• Dead Stock: Overstocking and having left over products with little to no demand.

What are growth projections?

In its simplest form, growth projections are an educated guess of your retail growth over a set period of time. It allows you to estimate the future demand of your products from real-time inventory trends and historical data. 

When determining these projections you’ll need to consider internal factors and external factors that could impact your projections. 

Internal factors of growth projections

Internal factors that play a role in your growth projections are things within your business that you can control or influence. Here are some examples:

• Inventory: By making sure you have what you need to meet each sales season expectation, you control the sales you can make. 
• Promotions: If you need to move stock that’s stagnant, you can always offer coupons, discounts, or other promotions. 
• Website Traffic: How are people finding out about you? Is it from social media, organic search, affiliates, ads? Is there a way you can ramp up your marketing efforts?
• Conversions: Are your webpages converting at an industry average? Would it be worthwhile to work with someone to make sure there are no technical issues, or other opportunities when it comes to increasing your conversion rate? 
• Time: We all deserve time off. If you’re a one-person shop, though, you may not be able to fulfill every order that comes in based on your personal time constraints. Consider what’s possible for you to do alone, and if it would be worthwhile to hire help. 

External factors of growth projections

When it comes to your growth, not everything is in your control. Some examples of external factors that could impact your growth projections include:

• Competitors: Most ecommerce brands are up against at least a handful of competitors. What are they doing well? Where are you excelling? Take into consideration any up and coming brands that could impact your business. 
• Algorithm Changes: If all of your sales are coming from organic social media posts, and the algorithm changes, how will that impact your sales? Do you have a way to stay in touch with your customers if something like this does happen (like an email list)? 
• Trends: These can be both good and bad. If you were a plastic straw company when people decided to stop using straws, your business likely suffered. On the flip side, if you sold metal straws, you may have seen a huge uptick in sales after this trend started. 
• Regulatory changes: If the government says there’s a part of your product you can no longer use, or your entire product is no longer allowed (again, like the straw example) it can greatly impact your sales. Normally regulatory changes are slow, and you’ll have some kind of notice to make changes.
• Seasonality: Sometimes products are more desirable than others. No one really wants to buy a winter coat in the summer – so take seasonality into consideration. 

The Most Basic Way to Calculate Growth Projections

If you want a simple way to calculate your growth projections, consider using the following formula to determine your annual growth rate. 

Annual Growth Rate = (Ending Value – Beginning Value / Beginning Value) x 100

Here’s an example of this: 

1. Beginning Value (or sales for year 1) = $40,000
2. Ending Value (or sales for year 2) = $55,000

Adding those to the formula:

Annual Growth Rate = (55,000 – 40,000 / 40,000) x 100

So, your annual growth rate is 37.5%. Which means the following year, if you didn’t change anything and grew at the same rate as the previous year, you could predict your revenue to be somewhere around $75,625. 

Now this isn’t a guarantee. Maybe you’ve saturated the market at $55,000, or maybe a competitor comes in and takes a percentage of that new revenue. This also doesn’t take into account your expenses and actual profit. But, formulas like these give you a starting point to determine your expected growth, year over year if you don’t change anything. 

While trial and error is a huge part of being a business owner, your revenue decisions should always be strategically calculated and planned for. Assess problems and risks, as well as rewards. 

What do I do if I don’t have data to calculate my growth rate?

Sometimes a new business lacks the data, either because they’re new or haven’t put a system into place to track their sales closely. 

Some other metrics you can look at to begin to understand your growth rate include:

• Your open rates and sales rates from the emails 
• Your ad sales from any platform (Google, Facebook, TikTok, Instagram, etc)
• Sales generated by affiliates 

Take note of these sales month over month. Note any outliers and why they occurred and use the information to predict future sales. 

Other Things to Consider When Determining Growth

How is the market changing?

You may notice your sales are unexpectedly trending up or down month or month. Take note of why that is in your records, so you can use it to inform your growth predictions in the future. 

For example, when Taylor Swift started the Eras tour, the bead industry probably wasn’t expecting to see a giant pop in sales. Yet, that’s exactly what happened. Retailers like Michael’s saw a 300% increase in bead sales. If you noted this trend and capitalized on it, say by creating Taylor Swift specific beads, you could make a major impact on your sales. 

This note is important though, because eventually the tour will end, or perhaps fans will spend their money on a new trend. So it may not happen year over year and could be excluded from next year’s projection.

Take note of any unexpected market changes and seasonality that could impact your business. 

Does the greater economy affect your business?

Do you sell to people exclusively in your community, or around the world? How could things happening in those communities impact your sales?

Try and determine if your item is a want or a need for your customers. If times start to get tough, and your customers need to penny pinch, will your product be affected? 

Shopify estimates that ecommerce sales will be around $7.96 trillion by 2027. Yet, if a major company you sell to goes into a recession, you may not see the profits you’re expecting from the expanding industry. 

Are you launching new products?

Launching a desirable new product is one way to potentially increase your sales and impact your growth projections for the year. If you have a similar product, you can estimate the sales based on the sales information you already have. 

Do you have a major customer that’s growing a lot?

Your success can sometimes come on the coat-tails of another business. If one of your customers is experiencing expedited growth, it’s worthwhile to have a conversation with them about the number of products they need each month. That way, you can make a plan to meet their demand, and the demand from other customers. 

Are you going to shift your offerings to include B2C or B2B? 

If you haven’t included B2B or B2C sales in the past, adding a completely new audience could make a major impact on your business.

Three Pitfalls to Avoid

1. Make sure to account for any supply chain delays. While we likely won’t see anything as catastrophic as 2020, keeping a pulse on supply chain issues can help you plan for the worst and pivot. 
2. Always collect data when it comes to your sales, expenses, and profit margins. If you want to grow your business, you have to become familiar with these metrics, as they will inform what you can and can’t afford. 
3. Take into account any bottlenecks or longer lead times when placing orders. You can erode customer trust by being unable to fulfill sales. Buy a safety stock if there’s a high likelihood of issues arising. 

Why do you need to know your growth projections?

There are lots of reasons why you want to know your growth projections, including reducing risk, increasing customer satisfaction, and investing back into your business with confidence. 

Reduce Risk

With growth projections, you’ll know where your stock has been, where it is now, and where it’s going – ensuring you always have the right amount of inventory. 

Optimize Inventory Levels

The last thing you want is to experience stockouts or dead stock. Growth projections can help you order the right amount of inventory at the right time.

Increase Customer Satisfaction

By making sales predictions, you’ll have a better chance of always having the products in stock that people want. When items that are ordered are ready to ship quickly, it builds trust and creates brand loyalty. 

Decrease Expenses

Being overstocked can have as negative of an impact as understocking. Growth projections help you avoid carrying costs, improving your overall return on investment. 

Refine Sales and Pricing

If there’s a high demand for a product that’s low in stock, it could be a sign you should raise your prices. Growth projections give you the opportunity to capitalize on high-demand items. Or, if you notice something isn’t selling well, you can discount it or bundle it with something else to get it moving off your shelves. 

Troubleshoot Issues

Is your conversion rate down significantly compared to last year? There could be a good, fixable reason. For example, is your website working correctly? Did it drop in keyword rankings? Do you have a new competitor? Are people shifting away from your products? Growth projections let you proactively troubleshoot issues before they spiral. 

Re-invest in Your Business

When you use growth projections and make the most of your money, you can make a strategic plan for growing your business. Some options include:

• Working with a customer service team 
• Launching new products
• Purchasing inventory management software
• Working with a professional on your local SEO presence
• Investing in a co-warehousing space

These are risks you likely won’t take unless you know that you can afford them. 

You’re Ready to Track Your Growth Projections 

Stop for a second and think about your current ecommerce business. What are the things you love, and what are the things you’d like to change. Now, picture your business five years from now. What’s changed? What are the things you’re really excited about? 

Your growth projection can help you get to that five year business. You can set realistic goals. Create a budget to ensure resources aren’t wasted and money is allocated appropriately. Identify opportunities and make the most of them. 

It all starts with collecting your sales data points and calculating your growth projections. 

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