Thanks for your thoughts on the ACV-to-revenue ratio. I had realised that my 50-50 ratio needed tweaking, but the rest of my model was so questionable, that I put the tweaking issue aside. The model below uses my half-&-half approach, which I may change in future.
Earlier today, and before I had read your post, I had decided to progress my notion of relative market potential of NA vis-à-vis ANZ, and I created a new spreadsheet that would help me wrap my mind around the the growth potential of both geographies. You wrote, “I have assumed the rate drops off slowly but steadily from 26.8% in the last half year of FY21 to 20% per half-year by the end of FY24.” For the half years FY22H2 and FY23H1, I had plugged in bi-annual growth of 27.00% and 25.5%, then I reduced the following half years growth by the same ratio – that is, multiplied each subsequent half year growth percentae by 25.5/27 of its preceding half year percentage. The result is interestingly close to what you did.
Pefore I cut and paste my metrics, I'll comment on some issues that follow from grjohnson posts.
North America – $A or $US
Apart from the fact that NA metrics are easier to find, my reason for using $US in my model is that NA has its own growth dynamic, which I want to consider without exchange rate interference. Either way (using $A or $US), exchange rate variations interfere with ACV forward projections. If my focus were on financial history, I would use $A, but looking forward, I prefer to work on NA in $US. When I convert the calculated results to $A, I use 1.38 as the exchange rate, the reciprocal of which is 0.7246376812, or circa 0.725.
NA and ANZ – relative market potential
I used a low growth for ANZ of 3% compounded every six months, which is (1.06 x 1.06) - 1 = 12.36% per annum – perhaps too high in the longer run. NA's growth was covered earlier in this post.
The NA-to-ANZ population ratio is about 13. I used a multiple of 6.5 to factor in the fact that, relative to ANZ, NA's population is less concentrated in centres that have a population of over a hundred thousand. This is conservative, but other factors like competition, incline me to stick to 6.5. The purpose of this relativity is to get a feel for the growth of NA for a few years.
