Above everything else, investors want to see a return on investment. How do you prove to investors that they will be profitable? Things such as a rock-solid business plan, a unique idea, and a strong narrative obviously help. However, nothing beats hard data. Numbers showing past success or projecting future profitability can speak louder than words. That is where the Rule of 72 comes in handy. The Rule of 72 is a quick, helpful formula used to estimate the number of years necessary to double an investment at a given rate of return. Calculating compound interest can be difficult for us humans, and the Rule of 72 is a simplification of this complexity. Finply has adopted the concept outlined in the Rule of 72, doing the complicated calculations for you while giving you exact numbers.
The formula for the Rule of 72 is:
Years to Double = 72 / Growth Rate
Growth rate = rate of return on an investment
At Finply, we want to help you secure the investments you need to help your business grow. Therefore, we make it easy for you to see how quickly your investments or sales will double based on your projected growth rate. We are using the same concept as the Rule of 72. However, Finply gives you the exact numbers. Our ‘Revenue Projection’ tab enables you to see how much-projected revenue your company will generate by market segments at various growth rates within our app. The compound growth rate adjustable slider within the app allows you to adjust the growth rate to quickly illustrate how long it will take for your company specifically to double sales.
In the example above, Month 1 is our starting point. After each month, we are looking at the return to the investor when the compound monthly growth rate is 10% plus the initial investment. Each month the amount of accrued interest grows by 10% on the original investment plus any accrued interest already earned at the beginning of the month. So in Month 3, you can see that the value is $121, which corresponds to $100 Initial Investment, plus Month 2’s accrued interest of $10 and Month 3’s compounded accrued interest of $11. Relating back to the Rule of 72, you can see on the chart that investment of $100 doubles after month 8 as the formula above would imply (72/10 = 7.2 months).