The Growth Modeling Tool
Its construction is simple by design. This spreadsheet enables a firm to edit and test different quantitative approaches to their growth. These three variables layout the growth needs:
- Revenue. We enter in your current revenue.
- Runoff. We enter your Runoff percentage. Runoff is the percentage of revenue that will not reoccur next year. For example, clients sell, merge, die, leave for service or fees, etc. The average runoff is 7%. If a firm provides significant consulting, the percentage will be higher.
- Desired Growth. This is the annual net growth you want to see. If Runoff is 7% and Desired Growth is 5%, a firm needs 12% in revenue to achieve the 5% goal. On a $10M firm, this equals $1.2M in new revenue or $100,000 per month.
Add in One Other Element
Impaired Leverage. The $10M example above requires $100,000 a month in new revenue. Do you have the professionals capable of bringing in that level of work monthly? Assume that $10M firm has 60 employees with 50 accounting professionals. How many of the 50 are bringing in material business? Our experience is 5%. Maybe 2-3 people. In a highly sales-oriented firm that percentage may be 10%.
Do the Math. $100,000 a month with 3 primary sellers means each needs to bring in $400,000 annually or $33,333 each month. If Runoff is 10% instead of 7%, add another $300,000 driving each person’s target to $500,000 annually or $41,667 per month each. That will be difficult to sustain without resolving the impaired leverage and the situation gets worse as the firm grows.
An Example of the $10M Model
We took the $100,000 monthly growth need and broke it into 4 different segments. The percentages assigned are closer to what we think a firm should aim for, but every firm is different.