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| Membership (fee-based) POST WRITTEN BY Kayce Hunt Mar 8, 2018, 09:00am EST Updated Mar 8, 2018, 09:00am ESTHow many times during your educational career have you thought to yourself, “When on earth am I ever -- and I mean ever -- going to use this?” I would venture to guess we’ve all thought this a time or eight. I know I certainly did. While sometimes this thought held truth (thank you to my college elective, "Poetry of Rap"), other times I realized there were many things I said this about that, in reality, I have found incredibly useful in my career so far. This being my first post as a member of the Forbes Finance Council, I find it fitting to salute my education and career, which have brought me to where I am.
There are many items in math and statistics about which I said those exact words throughout the years. The main topics that are top of mind for this are regression, statistical significance, slope, correlation coefficient and the topic of this article: polynomial equations.
Most recently, I have found myself using polynomial equations to both model growth rates and predict monthly revenue. As you can see from that comment, knowing your way around polynomial equations can be useful for anyone who owns a business, anyone interested in owning a business or anyone whose job revolves around analytics.
For starters, I will define what a polynomial equation is. A polynomial equation is a mathematical expression consisting of variables and coefficients that only involves addition, subtraction, multiplication and non-negative integer exponents of variables. So, a simple example for you would be y=x 2 +x+1.
I will now walk you through the five steps to modeling growth rate and revenue for your business and how I applied them in my project.
Step 1: Research businesses similar to your own.
This is definitely the place to start. You can do some online digging to find what similar businesses' revenue, or key aspects of revenue, were for particular time periods. This is not only key to understanding how your own business can grow, it also forces your hand to check out possible competitor growth and market information for said competitors. For the project I am working on, I could only find information for year one and years five through seven. Therefore, using a polynomial equation was the obvious choice for modeling what their complete first five years have looked like without that information being public.
Step 2: Quantify how you differ.
The next step is looking at how you differ from the businesses you researched above and how that affects your model. Does your business cover a broader range of products or a narrower range of products? Is geography a factor in what you offer and how you could expand? And, broadly, what can hold you back from growing or catapult your growth in comparison to the businesses similar to you or your competitors? For the project I am working on, the searches and market we would be covering would, in fact, be narrower compared to the similar businesses by products offered.
Step 3: Use a spreadsheet to graph your polynomial.
Now that you have some information about similar businesses and competitors and how you differ, you can use those data points to graph your polynomial in a spreadsheet. With the project I am working on, I had information on only the first year and final three final years, as mentioned above. So, my year one was known, years two through four were unknown and years five through seven were known data points. I used these to graph my polynomial, as well as obtain that polynomial equation to figure out my users for the missing time periods (years two-four). An example is shown below:
Graph of users per month
Image courtesy of Kayce Hunt