What is the fastest way to calculate Growth

Question

Hello

I am not sure how reasonable to encounter a question like the following in interviews but I came across the following market growth question while practicing:

Market size (total revenues in thousands):

Argentina = 2500$
Japan = 3500$
Australia = 3500$
Sweden = 2500$

Company's expected market share at year 1

Argentina =35%
Japan = 25%
Australia = 20%
Sweden = 25%

Expected annual growth over the next 3 years is

Argentina =10%
Japan = 5%
Australia = 10%
Sweden = 15%

what are the revenues for the company at the end of year 3?

One way to do it is to multiply annual growth by the total revenues (market size) and get the growth at the end of year 1 , repeat for year 2, repeat for year 3 then assume company's share stays constant at the end of year 3 multiply the revenues at year 3 by the company's share.

Q1: is there a faster way to do it? This will take long time especially that we have to do it for 4 countried and the numbers are not nice to deal with

Q2:Another question can you give ideas about the differences (Pros/Cons) between distribution chanels: Distributors Versus Retail Versus Website?

website: higher profit margins - no intermediate in selling process
Retail: more brand exposure - easier customer service (local, same language)
Distributors: .... I do not know any !

Thanks !

Answer 1

Hi, in addition to the solution proposed by Giulia, I would like to suggest similar cases in the platform to practice with:

https://www.preplounge.com/en/consulting-forum/how-much-would-you-charge-to-clean-all-the-windows-in-seattle-4965
https://www.preplounge.com/en/consulting-forum/market-sizing-milk-consumption-5087
https://www.preplounge.com/en/consulting-forum/how-would-you-calculate-the-value-of-a-cow-4982
https://www.preplounge.com/en/consulting-forum/estimate-number-of-traffic-lights-in-a-london-5692

Hope it helps,
Antonello

Answer 2

Hi,

I'll compute the calculation for Argentina, then you can do it exactly in the same way for the other countries (I'm assuming that market share and market size are at the end of year 1):

Argentina market share year 1 ($) = 2,500*35%

Market share in year 2 ($) = Argentina market share year 1 * (1+annual growth) = 2,500*35%*(1+10%)

Market share in year 3 ($) = Market share in year 2 * (1+annual growth) = Argentina market share year 1 * (1+annual growth)^2 = 2,500*35%*(1+10%)^2

Please let me know if something is not clear or you have any additional doubt.

Regarding the second question:

- Website: higher reach and footprint, higher profit margins, lower distribution, real estate, and salespeople costs, BUT lower conversion from "seen" to "bought", concentration over "certain" customer segments (e.g., no older people), no impulse buy available, more competition/substitive products

- Retail: higher regional/local connection with the possibility to tailor the product/advertisement to local needs, higher visibility/brand exposure due to physical shop, brand loyalty-building due to added/quality service in the shop (e.g., personal shopper), BUT lower footprint, higher costs due to real estate, salespeople, distribution, lower profits (due to higher costs), the risk to act only as a shop window for customers than afterward buy the same product online

- Distributor: less cost in distribution due to interaction with 10-20 distributors that distribute your product in all the retail shops, less cost for salespeople that promote the product, BUT additional intermediator that wants their part of the profit, lower control over quality/service vs. retail

Hope it helps!