# Organic Growth: What It Is and Why It Matters to Investors

> **Definition**
>
> Organic growth is achieved internally by boosting production and driving sales growth without buying new businesses.

## What Is Organic Growth?

Organic growth is the expansion that a company achieves by raising production levels and increasing sales internally. This does not include profits or growth attributable to [mergers and acquisitions (M&A)](https://www.investopedia.com/terms/m/mergersandacquisitions.asp) but rather a rise in sales and expansion through the company's own resources. Organic growth helps companies maintain control and boost investor confidence. It stands in contrast to [inorganic growth](https://www.investopedia.com/terms/i/inorganicgrowth.asp), which is growth related to activities outside a business's operations.

### Key Takeaways

*   Organic growth strategies include process optimization, reallocation of resources, and new product offerings.
*   Measuring organic growth is done by comparing revenues year over year and comparable store sales.
*   Organic growth is contrasted with inorganic or external growth.

![Organic Growth](https://www.investopedia.com/thmb/1tW2EFkSgSn78CiS8Y4nTlJCs6g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/organicgrowth-Final-0ddcd61ecc2d450db108652029030690.jpg)

*Organic growth helps a company create long-term value by building stronger connections with customers and encouraging innovation. — Investopedia / Theresa Chiechi*

## Understanding Organic Growth

An organic growth strategy seeks to maximize growth from within. There are many ways in which a company can increase sales internally in an organization. These strategies typically take the form of optimization, reallocation of resources, and new product innovation and offerings.

Optimization of a business focuses on continuing to improve a business's processes to reduce costs and set appropriate pricing strategies for products or services. Reallocation of resources involves allocating funds and other materials to the production of the best-performing products. New product innovation and offerings seek to grow a business by developing and evolving new goods and services that will meet consumers' needs and help boost profits.

Organic growth is considered a slower growth strategy because it takes time to acquire new customers and expand business with existing customers. A combination of both organic and inorganic growth is ideal for a company, as it diversifies the revenue base without relying solely on current operations to grow [market share](https://www.investopedia.com/terms/m/marketshare.asp).

## Why Is Organic Growth Important?

Organic growth allows companies to expand using their existing resources. It shows that the company is strong enough to survive organically without any external forces. Here are some of the primary reasons why it is so important for businesses:

*   **Maintaining control:** Organic growth allows business owners to retain control over the direction of the company. This includes any business and financial decisions that align with their vision for the future of the company as opposed to giving up control to external parties through M&A.
*   **Long-term sustainability:** This strategy promotes sustainability because it relies on a company's own resources and strengths. This is done through [market research](https://www.investopedia.com/terms/m/market-research.asp) and understanding customers, along with their needs.
*   **Less risky:** Mergers and acquisitions can be risky and expensive. Growing organically eliminates the need to take on additional [debt](https://www.investopedia.com/terms/d/debt.asp) to acquire another company and the challenges of integrating two companies.
*   **Promotes innovation:** Companies are encouraged to adapt to change by focusing their efforts on new products and services based on input from their customers and [market trends](https://www.investopedia.com/articles/technical/03/060303.asp).
*   **Boosts shareholder confidence:** Organic growth indicates that companies are strong internally because they understand their customers and deliver value. This, in turn, translates to results for their [shareholders](https://www.investopedia.com/terms/s/shareholder.asp).

> **Important**
>
> Organic control can help increase operational efficiency by increasing output, improving production, and lowering costs.

## How to Measure Organic Growth

Companies often use revenue and [earnings](https://www.investopedia.com/ask/answers/070615/what-difference-between-earnings-and-income.asp) growth on a quarterly or yearly basis as the performance metrics by which to gauge organic growth. Pursuing organic sales growth often includes promotions, new product lines, or improved customer service. 

This type of growth is important because investors want to see that a company they are invested in (or plan to invest in) is capable of earning more than it did the prior year—a feat that often reflects in a higher stock price or increased [dividend](https://www.investopedia.com/terms/d/dividend.asp) payouts.

In some industries, particularly in retail, organic growth is measured as [comparable growth](https://www.investopedia.com/terms/c/comparable-store-sales.asp) or [comps](https://www.investopedia.com/terms/c/comps.asp) in a 13-week period. Comparable store sales, and sometimes same-store sales, give the revenue growth of existing stores over a selected period. In other words, comps do not factor in growth from new store openings or M&A.

## Examples of Organic Growth

Firms such as Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WMT)) and other big-box retailers report comps every quarter to give investors and analysts an idea of their organic growth. 

Walmart grew its comp sales by 4.5% in the 52 weeks ending Jan. 31, 2025—a clear example of organic growth that Walmart's chief executive officer CEO attributed to a strategic focus on e-commerce and faster delivery times.

### Investment Analysis of Organic Growth vs. Inorganic Growth

If company A grows at a rate of 5% and company B grows at a rate of 25%, most investors would opt to invest in company B. The assumption is that company A is growing at a slower rate than company B, and therefore has a lower [rate of return](https://www.investopedia.com/terms/r/rateofreturn.asp).

There is, however, another scenario to consider. What if Company B grew revenues by 25% because it bought out its competitor for $12 billion? The reason Company B purchased its competitor is that its sales declined by 5%.

Company B might be growing, but there appears to be a lot of risk connected to its growth, while Company A is growing by 5% without an acquisition or the need to take on more debt. Perhaps Company A is the better investment, even though it grew at a much slower rate than Company B. Some investors may be willing to take on the additional risk, but others opt for the safer investment.

Company A is the safer investment, which grew revenue organically by 5%. The growth required no merger or acquisition and occurred due to higher demand for its current products. Company B's revenue dropped by 5%, which is a decline in organic growth. Overall growth increased due to acquisitions by borrowing money. Its growth relies on acquisitions rather than its [business model](https://www.investopedia.com/terms/b/businessmodel.asp), which may not be favorable to investors.

## What Is an Example of Organic Growth?

A typical example of organic growth is a company building new factories or introducing new products to expand its market. This is in contrast to buying an existing competitor, which would be considered inorganic growth.

## What Are the Advantages of Organic Growth?

Organic growth is considered a slower growth strategy, although it tends to be more sustainable in the long run. Organic growth is a gradual strategy where a company seeks to expand marketing, increase sales, and determine consumer needs. Although this strategy is relatively slow, it allows a company to build momentum with each successful iteration.

## What Are the Advantages of Inorganic Growth?

Inorganic growth is a corporate strategy where a company seeks to expand through mergers or acquisitions of other companies. This is faster than organic growth strategies, allowing the company to rapidly acquire new consumers or infrastructure. The downside is that such acquisitions tend to be costly and are difficult to sustain as a long-term strategy.

## The Bottom Line

Organic growth involves the expansion of a company by introducing new products or targeting additional consumers. In contrast with inorganic growth strategies, such as mergers, this type of growth requires an intimate understanding of consumer desires and how to meet their needs. For investors, consistent organic growth can be a sign that a company has a strong understanding of its market and customers.  

> **Article Sources**
>
> 1.  Walmart. "[Walmart reports fourth quarter results](https://stock.walmart.com/_assets/_b7bad52767fd931c1359035907b625a8/walmart/db/938/9939/earnings_release/Earnings+Release+%28FY25+Q4%29.pdf)," Page 3.