What is the performance of your business this year compared to last year? Assumably, any invested individual should be able to answer this question… but can you?
Calculate your year over year growth (YOY) to find out.
Year over year growth (YOY) is an effective technique to measure the financial performance of a company. It compares how much your company has grown in a specific period, compared to that same period from the previous year.
With this technique you can compare various performance indicators, such as:
- Website traffic
- Cost per lead
- Number of customers
Here's a tutorial that demonstrates how I cleaned publicly available e-commerce orders data, calculated the year-over-year growth, and visualized the result. I used Intersect (a tool that lets you build data apps without coding), to build this data app, but you can use other tools/languages of your choice.
The specific analysis question I am trying to answer with this data app is:
How did a particular month compare to the same month last year in terms of revenue.
For example, I want to compare total revenue for November 2018 to November 2017. Did this e-commerce company generate more revenues in 2018 in this month or the previous year? What was the percent change between the two months?
Before conducting this comparison I need to clean the dataset.
The table that I found on Kaggle looks like this:
The dataset contains data on 100k orders from multiple marketplaces in Brazil made from 2016 to 2018. Its features allow viewing an order from multiple dimensions: from order status, price, payment and freight performance to customer demographics.
However, for this example, I am only interested in the revenue generated, and its corresponding date (specifically the year and the month).
So, my first step is to group my data so that it calculates the total revenue per month and year.
Next, I’ll do a couple of data transformations to delete unattributed data, and I’ll also delete the years for which I don’t have complete data. This leaves me with orders made in 2017 and 2018.
In our final step, we pivot our table so that each row represents a particular month, and each column shows the total revenue generated for that month and year.
The calculation for this metric contains three simple steps.
Calculating the year-over-year revenue growth
First, I subtract the latest year’s month revenue from the previous year’s month revenue.
(Last year January revenue - This year January revenue) = Difference
If the difference is positive, then the company's revenue grew; if it's negative, then the company lost money for that month compared to previous year.
I then divide the difference by the previous year's total revenue.
Difference / Total revenue for last year = 12 month growth rate
This gives us the 12 month growth rate of the company.
Finally, I multiply the 12 month growth rate by 100 to get the percentage rate of change.
12 month growth rate * 100 = Percentage growth rate
Visualizing the results
We'll then use our final table to plot a line chart showcasing the percentage rate of change per month.
And that's it!
If you want to explore this data app, you can find the public version on our web page.