How to Use Excel for Exponential Forecasting

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When a young company is forecasting its potential growth, the revenue projections rarely follow a straight line. Most companies expect that as they begin to grow and become better known, they will begin to make new sales at a geometrically increasing rate. When running the numbers for such growth in an Excel spreadsheet, it is possible to model the independent variables of time and the rate of increase year over year so that the dependent variable of revenue follows an exponential curve.

  • Open a new Excel worksheet. Create headings of "Year" and "Revenue" for the first two columns.

  • Fill the first 10 cells of the "Year" column with the numbers 1 through 10.

  • Click on the cell B2. Enter an equation in the format of the exponential growth forumla: y = ae^(bx). This is expressed in Excel by the formula:

    =aEXP(bA2)

    In this formula, "a" is the initial baseline value of the variable you are measuring and "b" is your rate of exponential growth.

  • Hit "Enter" when your formula is complete and Excel will calculate the result for the first year. Click and drag the bottom right handle of the cell A2 all the way down to A11 and Excel will calculate the results for the remaining nine cells. You now have a forecast of exponential growth.

References

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