Organic Sales - Definition & Example
What is Organic Sales?
Organic sales are the sales or revenue which are generated through company’s internal processes and existing operations. Any kind of merger or acquisition, borrowing do not contribute to organic sales, they are resulted from external sales.
In order to increase organic growth, the company must focus on increasing its customer base, improving productivity, increasing assets through reinvesting profits or creating/modifying distribution channels. This would help in understanding the business well and overall growth as there is more focus on efficient planning and strong management. It also provides flexible growth and helps maintaining company’s values. At the end, there is always an option to sell the business and earn profits.
But when there are limited resources or there are uncontrollable market factors, the growth is limited. Huge competition may also be a factor for stagnant growth. At that time, the company considers the way of inorganic growth, i.e mergers or acquisitions in order to earn immediate large profits. This can help in many ways such as company may take advantage of the acquired skills and resources to expand its business, it may get the required capital when needed and there is an increase in market share. But at the same time, there is lot more to manage. The company needs to control the rate at which it wants to grow, and focus on the directions in which the company is suddenly expanding. The company may also gain new debts.
In organic sales, the growth is more natural and not forced.
Example of Organic Sales
Let us assume an automotive company selling only cars since 20 years. Last year it sold cars worth 100 million dollar. This would be attributed to its organic sales. Now lets assume that it acquires a motorcycle company and sells additional 30 million units taking its sales to 130 million. So this 30 million may not be called organic sales as these might not have happened without acquisition.
Another example, A company grows by 20% in last year but that happened after acquiring a competitor so that means the company had no organic growth.
Hence, this concludes the definition of Organic Sales along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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