Wednesday, February 06, 2008

The biggest laugh from business plans: monthly growth percentage

Working around small businesses for a few years, I've had the chance
to see some business plans. There's always one hilarious component:
the baseless guesses about their sales growth.

For example, one I've seen recently predicts 30% quarterly growth in
customers. Now that kind of math might make sense for a compound
savings account, but why on earth do people assume compound growth for
customer count? Perhaps they're betting on some word-of-mouth effect.

It seems much more reasonable to make a ballpark of the count of new
customers that will sign up every month. For example, we expect to
hear from 1500 new customers every month, and we expect that 500 will
leave us, so we net 1000 new customers every month. Then you could
have a conversation about whether those constant values make sense.

But this compound growth of customers just doesn't strike me as
meaningful. (And, in fact, I've never actually seen it realized.)

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