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What is a normal growth rate for calculating value based on projected revenue?


We are looking at a lot of investment and acquisition opportunities, including a mix of established and new businesses. Many of them have revenue "hockey sticks" in the projected years. I mean that they assume fast growth in sales once they finish project XYZ. Their financial projections show incredible growth. Of course, we are skeptical but our team cannot agree on how to best forecast growth. I'd like to know if there are norms or quantitive data about growth rates out there that we could use in our models to come up with a better valuation.


The answer depends on many factors, like track record, industry, location, management team, financial health and more. One good place to start is comparative industry data. The more specific you can be about the industry and other factors the better.

The consulting firm McKinsey published data based on a 10 year analysis of non-financial firms. The median Revenue Compound Annual Growth Rate (CAGR) was 5.9% for non-financial firms. The study was inflation adjusted and covered 1997-2007. That is obviously a bit dated now, but is does cover the internet boom and crash.

You can certainly do better than that number. There are several sources of industry growth rates. The link from NYU school of business is the more granular perspective.

The most important indicator of future growth is past growth for the company you are modeling.


You should also look at comparable companies. Public company comparisons are limited because they have advantages that small companies do not have: scale, distribution and the like. But they also have limitations, especially related to growth. They do not grow as fast, because their growth comes on a big base.