When you understand the difference between linear and exponential growth, you can apply these concepts to line items within forecasts for your business’s balance sheets, income statements, and cash flow statements. With this information, you can determine your company’s overall growth rate and the rate at which revenue increases for your small business.
What Is Linear Growth?
Linear growth means that the number grows at the same unit amount over equal time periods. The change continues to proceed at the same exact rate, making linear growth constant.
- Example 1: (plus two each year) 100, 102, 104, 106, 108, 110, 112
- Example 2 (plus five each year) 25, 30, 35, 40, 45, 50, 55, 60, 65
What Is Exponential Growth?
Exponential growth means that an item grows at the same rate over time periods.
- Example 3 (10% growth each year) 100, 110, 121, 133.1, 146.4
- Example 4 (30% growth each year) 100, 130, 169, 219.7, 285.6
In Examples 3 and 4, the increased amount from the previous years also increased, which is precisely what makes it a compounding effect. This compounding effect allows your business to generate earnings from previous earnings.
Study your business’s past results to identify which line items are exponential and which are linear, and project forward from there for more accurate forecasting of your company’s revenue and bottom line.
Learning the difference between linear and exponential growth and tracking the growth of your business are essential. That’s why 4.3 million customers use QuickBooks to perform this task and many others. Join them today to help your business thrive for free.