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Growth function in Excel

Posted on 2010-08-13
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Last Modified: 2012-08-14
I'm working on a revenue forecast and have several revenue streams.  I'm predicting a different month for stabilization, after which I think a monthly or annual growth rate is appropriate.  Until that point in time, though, I expect an exponential growth.  For example, memberships are expected to reach 10k per month by month 6, with a 5% growth per month thereafter.  I'd like to figure out, via a formula, a quick way to grow the revenue from $0 to $10k per month by month 6, with the ability to change the stabilization month (6 in this case) and Dollar figure ($10k in this case) at the stabilization point.  Anyone have any ideas?
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Question by:BBlu
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by:Patrick Matthews
ID: 33433401
>>I'd like to figure out, via a formula, a quick way to grow the revenue from $0 to $10k per month by month 6Arithmetically, you can't.  There is no possible growth rate that gets from 0 to any other number, because you cannot divide by zero :)
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by:Patrick Matthews
ID: 33433438
What you can do is assume your starting point is 0.01.  Now the growth rate to get you from 0.01 to GoalAmount by the end of N periods is:=(GoalAmount/0.01)^(1/(N-1))-1
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Expert Comment

by:Patrick Matthews
ID: 33433599
BTW, the rate that that formula above calculates is a per period rate; if the periods you are using here are months (i.e., going from 0.01 to 10,000 by the end of Month 6), then that rate is a monthly growth rate.
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Author Comment

by:BBlu
ID: 33433609
and how do I apply that to each month... for example we expect memberships to grow to a steady state of 28,633 by month 6.  What might the function be for each month (1-5; 6 = 28,633)?
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by:Patrick Matthews
ID: 33433738
How would that be calculated?  Linear, or geometric (which is what my formula will do)?
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Author Comment

by:BBlu
ID: 33434283
I assume N is the total number of periods.  Should there be a n for the current period.  Using your formula, what would the first and second months formulas be, for example?
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Expert Comment

by:Patrick Matthews
ID: 33434368
See the attached example, which shows how to do assuming either geometric growth or linear growth.

Q-26401805.xls
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Author Comment

by:BBlu
ID: 33434376
Perfect!! Are you a mathematician or something? :)
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Expert Comment

by:Patrick Matthews
ID: 33434396
Nope, just a finance major in a different life :)
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Author Comment

by:BBlu
ID: 33434406
one question: shouldn't the .01 be in period 0?  how would the formula change if that was the case>
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Author Comment

by:BBlu
ID: 33434409
LOL.  Wow, I have an MBA and couldn't get that one... boy, do I feel like I wasted my money.  LOL
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Patrick Matthews earned 225 total points
ID: 33434439
>>one question: shouldn't the .01 be in period 0? how would the formula change if that was the case>

Have a look here:
Q-26401805.xls
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Author Comment

by:BBlu
ID: 33434703
Got it.  Thank you.
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Author Closing Comment

by:BBlu
ID: 33434706
Thank you very much.
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