Iftheprojectedrevenuesforafirm 10 yearsoutwouldgiveit
a 90 percentor 100 percentshare(orgreater)oftheoverall
market in a competitive market place, you clearly should
reassess the revenue growth rate.
4.Assumptionsaboutrevenuegrowthandoperatingmargins
havetobeinternallyconsistent.Firmscanposthighergrowth
rates in revenues by adopting more aggressive pricing
strategies, but the higher revenue growth will then be
accompanied by lower margins.
5.Incomingupwithanestimateofrevenuegrowth,youhave
tomakeanumberofsubjectivejudgmentsaboutthenatureof
competition,thecapacityofthefirmthatyouarevaluingto
handletherevenuegrowth,andthemarketingcapabilitiesof
the firm.
Estimatingrevenuegrowthratesforayoungfirmina new
businessmay seemlikean exercise in futility.While it is
difficultto do,there arewaysinwhich youcanmake the
process easier.
- One isto workbackwards byfirst considering the
shareoftheoverallmarketthatyouexpectyourfirm
to haveonce it matures and then determining the
growthrateyouwouldneedtoarriveatthismarket
share.Forinstance,assumethatyouareanalyzingan
online toy retailer with $100 million in revenues
currently. Assume also that the entire toy retail
market had revenues of $70 billion last year.
Assuminga 3 percentgrowthrateinthismarketover
thenext 10 yearsandamarketshareof 5 percentfor
yourfirm,youwouldarriveatexpectedrevenuesof