Relative change is a powerful metric that measures the magnitude of change in a value relative to its original state. Unlike absolute change, which simply provides the difference between the new and old values (e.g., $10), relative change puts this difference into context by expressing it as a percentage of the starting value. This makes it an invaluable tool for comparison.
The Importance of Context
For instance, a sales increase of 1,000 units is impressive for a small business that previously sold 500 units (a 200% increase), but it's a minor fluctuation for a corporation that sold 1,000,000 units (a 0.1% increase). Relative change highlights this distinction, providing a standardized measure of growth or decline.
The Mathematical Formula
The calculation is straightforward. The formula for relative change is:
Relative Change = (Final Value - Initial Value) / |Initial Value|
To express this as a user-friendly percentage, the result is multiplied by 100. A positive result signifies a percentage increase, while a negative result signifies a percentage decrease.
Percentage Change (%) = [(Final Value - Initial Value) / |Initial Value|] × 100