keymodels
Market growth rate
How should market growth rate be measured and interpreted?
Contents
Helps managers answer: To what extent are we operating in markets with future potential?
Market growth rate shows whether the defined market in which a company operates is expanding or contracting. Used with market size, share, profitability and competitive evidence, it helps management assess future revenue potential.
When to use it
- Answer the key performance question: “To what extent are we operating in markets with future potential?”
- Assess this KPI within the Marketing and sales perspective.
- Plan how the market boundary, data sources, formula and reporting frequency will be governed.
- Compare actual and forecast movement with relevant targets, scenarios and market evidence.
Origins
Market growth rate does not belong to a single inventor. It developed from the long-standing economic and market-research practice of comparing demand or sales across periods, and became a common strategic KPI as portfolio planning placed greater emphasis on the growth of the markets in which a business competes.
What it is
Perspective: Marketing and sales perspective.
Key performance question: To what extent are we operating in markets with future potential?
Define the market first: customer group, need, geography, channel, product boundary and measurement period. Market size is the total value or volume of goods or services sold within that boundary. Growth can be expressed as a change or percentage; in the ratio form used here, current-period size is divided by prior-period size. A result below 1 denotes contraction, while a result above 1 denotes expansion.
The indicator is directional rather than sufficient on its own. A growing market can be unprofitable or inaccessible, and a contracting market can still support an attractive specialist position. Interpret growth with share, margins, substitution, regulation and the reliability of the estimate.
How to use it
Measurement
Record the market definition, measurement unit, currency treatment, source, cut-off date and any restatement policy. Keep these consistent across periods; otherwise a boundary or price change can masquerade as real growth.
Data collection method
Use independent published data when it fit the defined market. If direct data are unavailable, triangulate several approaches:
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