Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
This brings us to the Target Market (line 2 in Table 7) — the number of households
that could afford the type of housing in our case study, which is 393 million. Next,
we consider the number of households that we expect will choose this type of
housing – i.e. the anticipated penetration rate – and the price they can afford.
Sizing the revenue opportunity
Once we have our target customer base, we turn to our selected case study to identify
some of the microeconomics of the business.
1. Identify an anticipated penetration rate and an anticipated customer base
Above, we quantified a target market, but the total number of households in our
target market may not be consumers of our product or service. In the case of
housing, for instance, some households may decide the assumed pricing is too
expensive, may already own their own home or may be unable to access the
required financing, or they would prefer not to lock up cash in mortgage
payments. Regardless of the reason, there will be a penetration rate of less than
100% for any business. While Monitor believes that a penetration rate of 80% is
feasible 54 , we apply a haircut to this rate given our assumption that this business
model will successfully transfer to other geographical and regulatory regimes,
and our assumption that these projects are to be delivered in the next ten years.
We assume a more conservative 50% penetration rate (line 3 of Table 7). Then,
multiplying our anticipated penetration rate by our target market gives our
anticipated customer base of 196 million households (line 4 of Table 7).
2. Identify the average price per unit
Next, we use our case study to give us a feasible price estimate for the given
product or service. In our affordability test in Table 10 above, we have already
calculated the price range that will be affordable: $6,000–$22,000 (line 5 of Table
7).
3. Estimate the growth in customers
We do not believe it is reasonable to assume that the estimated penetration rate
can be achieved in the first year of our 10 year period. Instead, we assume that
the number of customers starts at a low penetration in year 1 and then grows to
reach the target market penetration, such that each subsequent year represents the
same multiple of the first year (e.g. the number of customers in year 2 is two
times the number of customers in year 1, and the number of customers in year 3
is three times the number of customers in year 1). In the case of housing, the
aggregate number of customers over the 10 year period equals the target market
penetration, as we assume housing represents a one-time purchase for each
customer. In the analysis for other sectors where purchases are recurring, the
customer base in year 10 equals the target market penetration.
4. Estimate the revenue opportunity: Anticipated customer base × price per unit
Now that we have the number of customers we can reasonably expect to
participate in our business in each year of our model, we can multiply the number
of customers by the average price per unit to obtain the revenue opportunity over
the 10 year period: $1,179–$4,323bn (line 6 of Table 7).
54 Monitor Inclusive Markets, based on interviews with potential homeowners.
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