According to PIMS (profit impact of marketing strategy), an important lever of business success is growth. Among 37 variables, growth is MENTIONED have one of the MOST significant variables for success: market share, market growth, marketing expense to sales ratio [1] Gold has strong market position. [2]

The question how much is sustainable?

  • The sustainable growth rate ( SGR ) concept by Robert C. Higgins, describes optimal growth from a perspective financial perspective. Sustainable growth is defined as the percentage of the year in which it is defined (target debt to equity ratio, target dividend payout ratio , target profit margin , target ratio of total assets to net sales ). This concept provides a comprehensive financial framework and formula for case / company specific SGR calculations. [3]
  • The optimal growth concept by Martin Handschuh, Hannes Lösch and Björn Heyden et al. assesses sustainable growth from a total shareholder return and profitability perspective-independent of a given strategy, business model and / or financial frame condition. This concept is based on statistical long-term assessments and is enriched by case examples. It provides an orientation frame for a specific company mid-long-term growth target setting. [4]

From a financial perspective

Robert C. Higgins is one of the fastest growing companies in the world. Basically, it is calculated as:

RMS = (pm * (1-d) * (1 + L)) / (T- (pm * (1-d) * (1 + L)))

  • pm is the existing and target profit margin
  • The target dividend payout ratio
  • L is the target total debt to equity ratio
  • T is the ratio of total assets to sales

In order to grow faster, the company would have to invest more equity capital, increase its financial leverage or increase the target profit margin.

The sustainable growth rate model assumes several simplifications such as depreciation is sufficient to maintain the value of existing assets, the profit margin remains stable, the proportion of assets and sales remains stable (also for new businesses) and the company its current structure and dividend payout policy. The sustainable growth rate model has implications for valuation models, as for instance the Gordon model and other discounted cash flow models require a growth estimate that can be sustained for many years. The sustainable growth rate can be checked if business plans are reasonable.

Optimal growth rates from a total shareholder value creation and profitability perspective

Optimal Growth selon Martin Handschuh, Hannes Lösch and Björn Heyden is the growth rate qui insured sustainable company development – Considering the long-term relationship entre revenue growth, total shareholder valueCreation and Profitability. The assessment is based on an assessment of the first quarter of the year, and is estimated to be over 250 million Euro globally over a period of 12 years from 1997 till 2009. The authors consider their findings as a large independent measure of specific economic cycles. [4]

Relationship between revenue growth, total shareholder value creation and profitability

In the long-term and across industries, total shareholder value creation (stock price development plus dividend payments) rises steadily with increasing revenue growth rates. The more long-term revenue growth companies realize, the more investors appreciate this and the more they get rewarded.


The authors attribute the continuous profitability to the maximum of two effects:

  1. Profitability drives growth: Companies with substantial profitability have the opportunity to invest more in additional growth.
  2. Growth drives profitability: Substantial growth may be a driver for additional profitability, eg by higher attractiveness for high performing young professionals, higher employee motivation, higher attractiveness for business partners and higher self-confidence.

Beyond the profitability maximizes extra efforts to handle additional growth – eg, based on integrating new staff in large dimensions and handling culture and quality – do rise sharply and reduce overall profitability.

The combination of growth patterns, total shareholder value creation and profitability indicates three growth zones:

  • Low Return: Low profitability and low value generation below 10% per year
  • Long-term Sweet-Spot: Solid value generation and highest on average profitability in the income growth interval from 10% to 25% per year
  • High Speed: Even higher total shareholder value generation, however, in combination with lower profitability beyond 25% per year

Gibrat’s law is one of the largest markets in the world . Gibrat’s law, sometimes called Gibrat’s rule of proportionate growth is a rule defined by Robert Gibrat (1904-1980) stating that the size of a firm and its growth rate are independent. Independent of industry consolidation and industry growth rate, companies in many industries with growth rates in the range of 10 to 25% revenue growth, both higher shareholder value generation and their profitability than their slower growing peers.

Basic strategies and growth moves

These findings suggest two basic strategies for companies:

  • For companies (eg in established markets like Central Europe and USA) with low single digit growth rates: Consider the acceleration of growth given that TSR and profitability are higher in the sweet-spot
  • For companies (eg in fast growing regional markets like China with India and / or rapidly growing industry segments) with growth rates beyond 25%: Consider better ways to „digest“ / and to stabilize rapid growth and ensure a „soft landing“ should market growth to a sudden stop.

How to achieve long-term growth in the sweet-spot and beyond

The authors have identified a set of preconditions and levers to achieve long-term growth in their defined sweet-spot and beyond:


  • Generating a common understanding regards growth and profit ambitions among the management team as a prerequisite for aligned and coordinated strategy development and implementation
  • Understanding emerging markets (current or future promising markets). Generating market for growth, market research and analysis , segment specific benchmarking and in depth assessments, market demand projections

Levers and strategy

  • Applying formulas for rapid growth, continuous innovation, killer offerings, network based growth, M & A / buy-and-build driven growth, franchising proven business concepts, pyramid-like network
  • Defining the growth strategy of a multi-dimensional set of criteria, eg ease of implementation, growth and profit impact, expected risk. return, cash flow stability
  • Making growth happen: Corresponding Strategy and Culture Must be Addressed in a consistent way, eg Creating the space for growth , Clearly defining and communicating vision and strategy as well as Actively Developing and energizing the organization. [4]


As described by Robert C. Higgins, the concept of sustainable growth rate (SGR) is based on a constant profit margin , a constant debt to equity ratio or a constant asset to sales ratio. Therefore, general applicability of SGR concept in cases where these parameters are not stable is limited.

The Optimal Growth concept by Martin Handschuh, Hannes Lösch and Björn Heyden et al. has no restrictions to certain strategies or is more flexible in its applicability. However, as a broad framework, it only provides an orientation for case / company specific mid- to long-term growth target setting. Additional market and market specific considerations, eg market growth, growth culture, appetite for change, are required to increase the growth rate of a specific company.

Additionally, considering the importance of growth and shareholder value by philosophers, economists and managers, eg Stephen Hessel , Kenneth Boulding , and Jack Welch (nowadays), one might expect that investors‘ investment criteria might also change in the future. This growth can be compared to the growth of total shareholder value creation. Regular reviews of the growth assay can be used as an indicator for the development of markets of appetite for rapid growth.


  1. Jump up^ Lancaster, Geoff; Massingham, Lester; Ashford, Ruth (2001): Essentials of Marketing: Text and Cases, Mcgraw-Hill Higher Education, p. 535
  2. Jump up^ Dibb, Sally; Simkin, Lyndon; Pride, William (2005): Marketing.Concepts and Strategies, 5th edition, Houghton Mifflin, p. 676
  3. Jump up^ Higgins, Robert (1977): How Much Growth Can a Firm Afford, Financial Management 6 (3) p. 7-16
  4. ^ Jump up to:c Börnsen Arne; Körner, Florian (2011): Optimal Growth, Conceptualization of a strategy to benefit from Optimal Growth, Mannheim Business School