Why Your Business Needs Our Growth Propensity Score

Mark Halstead Data

Most business owners would prefer to work with companies that are going to grow. 

Growing businesses will have higher demand for your services and are more likely to spend more in the future. 

They help to make your company sustainable and fuel its growth. 

In the past, there wasn’t an accurate method for predicting business growth and knowing which companies to target was a guessing game. 

Some attempts at predicting growth have been made. For example, by measuring the amount of venture capital that a company takes on.

But this disregards companies that grow organically. It also doesn't necessarily equate to high growth - a well-financed, but poorly managed company may grow slowly or perhaps not at all.

That’s why we’ve created our growth propensity score. It can accurately tell you which companies are likely to grow. This is backed up by Red Flag Alert’s other data intelligence which allows you to see who these companies are, where they are based, what sector they work in and more.

We think it’s going to revolutionise the way organisations target high-growth companies. 

In this article we explain why this score is useful, who would benefit from using it and how we developed it. 

How our growth propensity score works

Each company on our database is given a growth propensity score between 0 and 100.

  • 0 = very unlikely to grow in the next year
  • 100 = very likely to grow in the next year

We use the OECD’s definition of a high-growth company: one that increases its turnover by 20% in a year.

In other words, a company that scores 100 is very likely to increase its turnover by 20% in the next financial year.

The pass mark is 56. Companies below this are less likely to grow, and companies above it are more likely to grow. 

Who uses the growth score, and what for?

Our growth score has three main user groups:

Sales and marketing teams

The growth propensity score helps sales and marketing teams improve company revenues by targeting better, more profitable businesses. 

They can use the score to create lists of high-growth companies to target with campaigns. They can also use it to adjust their ideal customer profiles by analysing common features of high-growth companies in the sectors they serve. 

Marketing agencies could benefit from it too, by identifying companies that are truly growing and could benefit from additional support. 

Private equity firms, venture capital funds and corporate finance houses

This group uses the growth score to check the growth potential of companies that approach them for investment. They can also use it to monitor the growth of businesses they already fund. 

This helps them to manage their portfolio better and achieve greater returns.

Local authorities and local enterprise partnerships (LEPs)

This user group uses the growth propensity score to understand their local economy and make decisions about it.

For example, they may wish to see which sectors or areas within their jurisdiction have the highest propensity for growth and provide them with additional funding or support.

Supporting these businesses could have a knock-on effect and benefit nearby industries that work with those companies. 

How we created the growth propensity score

To begin with, we needed to use our database to understand what features companies that had experienced high growth had in common. This would allow us to create an algorithm that could accurately predict future growth.

Here’s a step-by-step account of our development process. We:

  1. Created a database of company data with four years of accounts for each business. We used four years of data to offset the impact of the pandemic.
  2. Cleansed the data to ensure it was accurate.
  3. Segmented the companies into those that met the definition of high-growth companies and those that didn’t.
  4. Analysed the data to identify common characteristics that differentiated the two groups.
  5. Divided the companies into six scorecards based on their current total assets. 
  6. Identified which characteristics would differentiate each scorecard and removed other scoring factors. This means we only include statistically significant and statistically distinct characteristics in the scoring model.
  7. Established a pass mark for each scorecard, which in turn allowed us to calculate the standardised pass mark of 56.
  8. This allowed us to create the following score bands:
  • Most likely to grow: 66-100
  • Likely to grow: 56-65
  • Unlikely to grow: 35-55
  • Least likely to grow: 0-34

Testing our model

To test our model, we scored 648,282 companies that had filed financial accounts in the last 6 months.

We found that:

  • None of the companies that scored 0 had increased their turnover by 20%
  • All companies that scored 100 had increased their turnover by 20%

This proves that our scores offer a high degree of certainty. As we’ll explain in the next section, it is more accurate than the scores provided by many of our competitors. 

Physitrack case study

We used a healthtech company called Physitrack as a case study to test the accuracy of our growth propensity score. 

According to business data provider Beauhurst, Physitrack is most likely to grow and is rated one of the UK’s 20 best healthtech companies.

However, Physitrack’s company accounts from 2020 tell a different story: 

The company has working capital of -£2,044,852. Its net worth is -£238,450, which is 475% lower than in 2019. It has total liabilities of £4,242,495. It is rated amber by Red Flag Alert, which isn’t healthy. 

According to our growth propensity score, Physitrack scores just over 10. This means that it is in the lowest band and is very unlikely to grow.

Discover how our growth propensity score can help your business

Accurately identifying high-growth companies is now a reality with Red Flag Alert. 

To discover how we can help you grow your revenue and use data to find the businesses you want to work with, book a demo or contact 0330 460 9877.

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Mark Halstead Partner

Mark's experience is big data analytics, financial services and building businesses provides Red Flag Alert with strategic direction.