Where Growth Comes From
The building blocks of a company's growth, how to split growth into price and volume, the difference between growing and buying growth, and why high growth rates rarely last.
The short version
Revenue grows when a company sells more, charges more, launches new products, enters new markets, or buys other companies. SEC rules ask companies to explain how much of a big revenue change came from price, volume, or new products, so annual reports often break it down. Growth from more customers buying is usually healthier than growth from price increases alone, and organic growth tells you more than growth bought through acquisitions. High growth rates are hard to sustain: a market only has so many customers.
By the end of this lesson, you'll be able to
- Name the main sources of revenue growth
- Split a revenue change into price and volume
- Tell organic growth from acquired growth, and judge whether a growth rate can last
Why this matters
Investors often pay more for companies that are growing. But growth comes in different kinds, and some are worth much more than others. A company that sells more to happy customers is in a different position from one that only raised prices, or one that bought another company to make its numbers bigger. This lesson shows how to take growth apart.
The building blocks
At its simplest, revenue is price times volume:
Revenue = Price × Number of units sold
So a company can grow by selling more, charging more, or both. Underneath that, growth usually comes from a few places:
- New customers, such as more households buying their first STU Corp system.
- Existing customers buying more, such as more of them switching to subscriptions.
- Higher prices, which stick only if customers value the product enough, the pricing power from Competitive Advantages.
- New products, and new markets, such as other countries or new sales channels.
- Acquisitions: buying another company and adding its revenue.
When a company's revenue changes a lot, SEC rules ask it to describe how much of the change came from price changes, from changes in the volume sold, or from new products or services.1 That's why the management's discussion section of an annual report often breaks growth down this way.
STU Corp's revenue grew from $350 million to $400 million. Here's where the $50 million came from.
| $ millions | Last year | This year | From volume | From price |
|---|---|---|---|---|
| Systems: 1.5 to 1.6 million, all at $100 | 150 | 160 | 10 | 0 |
| Cartridges in stores: 5.0 to 5.6 million, all at $25 | 125 | 140 | 15 | 0 |
| Subscriptions: 500,000 to 625,000, at $150 then $160 | 75 | 100 | 18.75 | 6.25 |
| Total | 350 | 400 | 43.75 | 6.25 |
For subscriptions, the volume part is the 125,000 new subscribers at last year's $150 price: $18.75 million. The price part is the $10 increase across all 625,000 subscribers: $6.25 million. In total, 87.5% of STU Corp's growth came from selling more, and 12.5% from charging more. That's a healthy mix: customers are buying more, not just paying more.
The rest of this lesson is for members
Still to come in this lesson: Organic growth and bought growth, How long can it last?, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Is It Growing?Part 3: Understanding Businesses
- Mergers and AcquisitionsCorporate Finance (depth track)
- Software and Subscription MetricsFinancial Statement Analysis in Depth (depth track)
Notes and sources
- Legal Information Institute, Cornell Law School. 17 CFR 229.303 (Item 303 of Regulation S-K): Management's discussion and analysis of financial condition and results of operations. Checked 2026-09-30. Back to text