LeadGen.com

Do You Have a Legitimate Path to Growth?
(Or, When Is "Good Enough" Not Good Enough?)

Of the 20 million or so businesses in the US, the vast majority do not want to grow beyond their current size, according to a 2011 study by Erik Hurst and Benjamin Pugsley of the University of Chicago. (You can find the study here.) If you're contemplating a growth program, you can use the model below to see if it's worth your while to invest in growth, either to increase your revenues, or your profitability, or both.

Step 1a: Estimate Your Market Opportunity

Estimate your Total Market Size, and the Addressable fraction, by replacing the numbers in the tables below (without commas) with those that reflect your own market and situation. (After you enter the numbers, go on to steps 2, 3 and 4, where you'll submit all your data to calculate the answer.)

Bo.
Step 1: Enter Your Market Size
Total Market Size $
Addressable Fraction  %
Addressable Market Size $ 10,000,000

Table 1: Market Size

Step 2: Fill Out Your Price-Elasticity-of-Demand, and Costs-by-Volume, Tables

The next step is to estimate the share of the Addressable Market (above) that you would expect to get as a function of the price of your offering. You do this by entering "price-demand" pairs which answer the question "For a given price, what market share would you expect to get?" in columns A and B (from lowest to highest) below. For most companies, the lower is your price, the higher will be your market share, but that's not necessarily the case. For example, a higher price might enable you to increase your market share by adding features or benefits, or positioning you better. (Just make sure your prices are in lowest-to-highest order from top to bottom.) If you don't know, just take your best guess.

In column C, enter your average unit cost at each price-demand level. This is to reflect the idea that your costs may be higher or lower for different volumes depending on quality, production efficiencies, capital requirements, buying power, etc.

Step 2: Enter Your Price/Volume Matrix
  (A)
Unit Price
(B)
Market Share
(C)
Unit Cost
Lowest Price $ % $
  $ % $
  $ % $
  $ % $
  $ % $
  $ % $
  $ % $
  $ % $
  $ % $
Highest Price $ % $

Table 2: Price Elasticity of Demand (A & B); and Costs by Volume (C)

Be sure to populate all ten rows for all three variables above. If you don't have ten possible price levels, either interpolate or extrapolate to fill all rows (e.g. 100% market share below some minimum price, or zero market share above some maximum price, or use smaller price increments.)

Step 3: Enter Your Price Level

You can test the effects of different prices below. To do this, enter a price below to see its impact on sales and profits.

Step 3: Enter Your Price
Price
$

Table 3: Pricing

Enter the price level that you'd like to test. It should fall between the minimum and maximum prices in column A from Table 2.

Step 4: Update the Model

Click below to update your results. If you've populated all the cells, the analysis will appear below.

Step 4: Click Submit