Forecasting for 2025
What's a good rate of growth?
January at Ballpoint towers means two core things: (1) reflecting and reviewing on 2024 data now that the year is complete, and (2) putting together strategy for the year ahead.
One core part of how we think about strategy is our growth models. I’ve been building growth models for 11 years now and they’re absolutely core to other growth team I was in in-house, then as a founder, and now with our clients as we set them up for growth.
Growth models for me should be documents where you can amend all the variables of the business, to understand what impact that activity has.
If you improve % of customers who join a subscription on first purchase, how does that impact 90 day LTV? What if it reduces conversion rate on site?
If you introduce a new region but it’s retention is 50% lower, how quickly can you get it up to break-even? And so on.
But the X factor variable in those documents is expected growth multiplier of marketing spend. The question is: how do you come up with that that amount is.
Today I wanted to share thoughts on how we think about those ranges in our planning, which maybe could help you do the same.
Very early-stage brands
The reason we do this work in January is because we’ve just got a complete year’s worth of data.
If you’re revenue last year was under £500k or even up to £1m, then you’re still most likely in the early days of product market fit.
The two questions I’d be looking at today are:
Do we have product market fit yet?
Do acquisition and unit economics currently go as planned? I.e. are we profitably and reliably acquiring customers?
If you don’t yet have PMF, then I’d not be focusing on growth at all, just focus on getting the product to be deeply loved with essences of acquisition that work.
What is good CPA?
If you do have PMF, but you don’t yet have an acquisition engine that’s properly firing then concentrate here.
What does an acquisition engine that’s firing look like?
If your product is high-frequency in usage (daily or at minimum weekly), continues to be so indefinitely, and needs replenishing, then you’ve probably got a business model that suits looking at retention. For you, ‘good CPA’ means it pays back early but probably not on day one. How ‘early’ it is, depends on your cashflow and confidence in your data.
If your product is moderate frequency (maybe monthly, or a few times a year), then first order break-even is important to get right (with repeat as a bonus).
And if your product is low frequency in use, or doesn’t need replenishing, then you need to be making solid contribution margin on day one.
If you don’t yet hit these criteria, then focus your efforts on improving your growth engine until you hit this.
We’re hitting those metrics
OK great, in which case it’s time to scale. This is likely to be one of your biggest growth years as a percentage that you’ll have.
I’d expected to hit between 2.5-5x revenue or ARR growth this year.
Growth stage brands
Once you’re comfortably into seven figures of revenue, your growth rate will likely slow in percentage terms.
At this stage, we look at a few key areas
1. Growth of other fastest growing companies
I like to look at CAGR of The Times’ Growth 100 List.
CAGRs of those companies looks like:
246% for the top 10%
99% for the middle 10%
68% for the bottom 10%
For businesses doing under £15m in turnover, the range of CAGRs in that list goes from:
71% at the lowest end, to
184% at the highest end
Add into this, I once had a VC tell me that they expected to see 3-5x growth for the first 3 years, and we’ve got some reasonably good statistics.
Great growth = 2.5-3.5x (150-250%)
Good growth = 2x (100%)
OK growth = 1.6-1.7x (60-70%)
2. Working our direct addressable market based on competition
Pitch decks everywhere give a total addressable market (TAM) as something in the millions or tens of millions. Or even worse “everyone on earth” (even Meta, probably the most successful user acquisition company ever only has 40% of the world’s population).
That’s not useful for understanding your growth potential.
I always like to understand your core country market and their sales or user volume to understand what you could be achieving. Is your next nearest competitor only 50% bigger than you (challenge), or are you 5% of them (great opportunity). This should help you frame where you might sit in your desired growth rate.
Maybe there’s no UK competitor, but a US business is doing $100m. Great, the equivalent in UK terms is likely £20-30m turnover, now you’ve got a goal to aim towards.
The ideal figure you want to find out though is the number of people who have your core Jobs to be Done.
3. Are you up against a marketing growth ceiling?
If you increased spend by three times this year, I’d wager to guess your CPA would blow up and you wouldn’t acquire incremental users.
Tripling or doubling spend requires more than doubling or tripling your marketing efforts.
Are you still single marketing channel? Yes? Then keep pushing until you hit efficiency loss.
Are you still performance-only? Yes? Then introduce fuller funnel approaches to creative and media buying, and increase your measurement ability.
Have you introduced secondary acquisition channels yet? Once you hit diminishing returns on an initial channel, introduce a second (but not before).
Is retention as good as it can be? If not, then focus on improving it to improve your 30d, 60d, 365d LTV.
Is your offer the right mix of volume, payback, and profitability? Experiment with the offer to your product.
If you’ve still got improvements to make here, then keep on pushing. Getting this stuff right alone can easily hit those great growth rates in CAGR for the next 2-5 years.
4. Are you up against a product/market growth ceiling?
If you’ve nailed your marketing for years and starting to hit a ceiling here, then you’re likely going to need to introduce new product areas, or introduce new geographies.
My preference is always to go late with geography expansion. Learn everything you can in your core market, and ensure it’s providing you with solid cashflow to be able to afford to learn new territories.
Maybe you’re restricted by geography, and therefore product growth is the angle. In which case, listen to the customers JTBD and work out what to build next. I always thought Huel did this playbook better than anyone.
5. How are you capped by internal resource?
Lots of brands died after covid because they grew too quickly. Whether it’s over-hiring that’s costly to course correct or you’ve overstocked due to shortlived demand.
People say lots of these can be “nice problems to have” but the reality is they can kill businesses. You should grow within a range you can afford to do so.
Summary
For most brands we’re working with, we’re targeting revenue growth somewhere between 75% and 350% higher this year than last year, with sitting around the 150-250% range.
CPA growth is also expected in line with this in most cases, and so it’s about forecasting a tolerance in what is acceptable to ensure you’re not growing revenue without losing too much margin.
If you’re looking ahead to 2025, and unsure what you think is achievable, then get in touch. We’d love to talk through potential with you and find out where your growth ceilings are.