Manifesto
The Nominal GrowthIllusion
Revenue grows every year. But does the company? In an inflationary economy those are two different questions, and the gap between them is where most bad decisions hide.
Author: Alp SuleimanPublished
Definition
Mistaking price rises for growth
The nominal growth illusion is reading revenue that rises with prices as if the company itself had grown. The number on the table gets bigger; units sold, customers served and what that revenue can actually buy stay flat, or shrink.
It isn't an accounting error. It's a reading error. The numbers are right. The question we ask them is wrong.
Financial reporting in Türkiye has already accepted this: from periods ending on or after 31 December 2023, companies applying TFRS and BOBİ FRS restate their statements for inflation (TMS 29, Türkiye's IAS 29). Growth conversations, though, still run on nominal figures. Targets, bonuses, investor decks, every sentence that starts with “compared to last year”.
Revenue grew: that's an observation. The company grew: that's a result.
See for yourself
Same revenue, two different stories
How much did revenue rise against last year, and how much did prices rise over the same period? Take out the price effect and what remains is the company's real growth.
Values are examples. For your own figures, the Real Growth Calculator uses TurkStat inflation and CBRT exchange rates.
Real growth
-3.4%
Revenue rose, but the company shrank.
Simple subtraction: -5%
- This year's revenue at last year's prices
- From prices
- Lost purchasing power
Symptoms
Where does the illusion hide?
Nobody falls for a nominal number on purpose. The illusion settles into ordinary sentences said every day.
- 01
“We doubled last year.”
A year-on-year comparison compares two different currencies. Last year's lira and this year's lira don't buy the same things.
- 02
The team that hit target
If the sales target was set in nominal terms, price rises hit part of it on their own. Bonuses get paid while market share quietly erodes.
- 03
Price rise equals growth
Raising prices grows revenue but wins no customers. Until you separate price from demand, you can't tell which one is working.
- 04
Unit economics that look too good
Measuring LTV at today's prices and CAC at yesterday's flatters the picture. Both belong at the same price level.
- 05
Profit, but no cash
Inventory and receivables inflate with prices too. Paper profit gets buried in working capital; the faster you grow, the more cash you need.
- 06
The chart in the deck
A revenue line going up convinces no one. The first question is “in real terms?” You should know the answer before it's asked.
Three lenses
There is no single right number
No single figure shows real growth. Three lenses answer three different questions; looked at together, the picture sharpens.
Real growth in lira
- Question
- Can my revenue buy more today than it did last year?
- Measure
- Nominal growth deflated by CPI change over the same period.
- Blind spot
- If your sector's costs move differently from general inflation, it draws an incomplete picture.
Growth in dollars
- Question
- Did I grow relative to the world?
- Measure
- Each period's revenue converted at that period's average exchange rate.
- Blind spot
- When the currency moves sharply it can make domestic performance look better or worse than it was.
Volume growth
- Question
- Am I selling more to more customers?
- Measure
- Units, orders, active customers or usage.
- Blind spot
- It hides changes in price and product mix; on its own it doesn't measure value.
Method
Reading growth in real terms, in four steps
- 01
Write down the nominal
Put two periods' revenue side by side and calculate nominal growth. It's the starting point, not the answer.
- 02
Take out price
Deflate by inflation for the same period. If you compare annual revenue, use the annual average change in CPI.
- 03
Separate price from volume
How much of the growth came from price rises and how much from selling more? Track units or customer count separately.
- 04
Decide on the real figure
Tie targets, bonuses and budgets to real growth. Report the nominal figure; manage by the real one.
Formula
Real growth = (1 + nominal growth) ÷ (1 + inflation) − 1
Subtracting inflation from nominal growth gives an approximation; the error grows as rates rise. Dividing is correct.
Principles
The discipline of real growth
- 01
Every growth figure comes with its real counterpart.
A nominal number on its own isn't information. It's noise.
- 02
State which inflation measure you used.
Annual average or December over December? They give different answers; the reader should know.
- 03
Report price and volume separately.
Pricing and demand are different muscles. You can't strengthen either without seeing which one is working.
- 04
Calculate unit economics at one price level.
Comparing yesterday's CAC with today's LTV makes profitability look better than it is.
- 05
Tie targets and bonuses to real growth.
Reward the work the team did, not the work inflation did.
The same discipline applies to AI claims: "AI made us X percent faster" can't be read before it is adjusted either. Growth Claim Check →
Frequently asked
What is the difference between nominal and real growth?
Nominal growth is the change in the revenue figure. Real growth is what remains after removing the effect of price rises, and shows how much the company actually grew in purchasing power.
How do you calculate real growth?
(1 + nominal growth) ÷ (1 + inflation) − 1. If revenue rose 40% while prices rose 45%, real growth is about −3.4%: revenue grew, the company shrank.
Which inflation rate should I use?
When comparing annual revenue with annual revenue, the annual average change in CPI is the best fit. If your cost base differs markedly from general inflation, also calculate with your own cost index and state which one you used.
Doesn't TMS 29 solve this?
TMS 29 restates financial statements to purchasing power at the end of the reporting period, an important step for reporting. But growth decisions are mostly made on monthly dashboards, sales targets and management decks that use nominal figures. That is where the illusion lives.
Isn't growth in dollars enough?
Dollar growth matters for imported inputs, foreign-currency debt or comparison with overseas competitors. But the exchange rate need not move at the same pace as domestic prices. Read it together with real growth in lira.
Now, your numbers
How much did your company really grow?
The Real Growth Calculator deflates your revenue with TurkStat inflation and CBRT exchange rates. No sign-up; the calculation runs in your browser and no separate request is made to send your numbers.