Growth Curve: Definition, How It's Used, and Example

What Is a Growth Curve?

A growth curve is a graphical representation how how something changes over time. An example of a growth curve might be a chart showing a country's population increase over time.

Growth curves are widely used in statistics to determine patterns of growth over time of a quantity—be it linear, exponential, or cubic. Businesses use growth curves to track or predict many factors, including future sales.

Understanding a Growth Curve

The shape of a growth curve can make a big difference when a business determines whether to launch a new product or enter a new market. Slow growth markets are less likely to be appealing because there is less room for profit. Exponential growth is generally positive but could mean that the market will attract a lot of competitors.

Growth curves were initially used in the physical sciences such as biology. Today, they're a common component of social sciences as well.

Digital Enhancements

Advancements in digital technologies and business models now require analysts to account for growth patterns unique to the modern economy. For example, the winner-take-all phenomenon is a fairly recent development brought on by companies such as Amazon, Google, and Apple. Researchers are scrambling to make sense of growth curves that are unique to new business models and platforms.

Shifts in demographics, the nature of work, and artificial intelligence will further strain conventional ways of analyzing growth curves or trends.

Analysis of growth curves plays an essential role in determining the future success of products, markets, and societies, both at the micro and macro levels.

Example of a Growth Curve

In the image below, the growth curve displayed represents the growth of a population in millions over a span of decades. The shape of this growth curve indicates exponential growth. That is, the growth curve starts slowly, remains nearly flat for some time, and then curves sharply upwards, appearing almost vertical.

This curve follows the general formula:

V = S * (1 + R)^t

The current value, V, of an initial starting point subject to exponential growth, can be determined by multiplying the starting value, S, by the sum of one plus the rate of interest, R, raised to the power of t, or the number of periods that have elapsed.

In finance, exponential growth appears most commonly in the context of compound interest.

The power of compounding is one of the most powerful forces in finance. This concept allows investors to create large sums with little initial capital. Savings accounts that carry a compounding interest rate are common examples.

The Bottom Line

A growth curve is a graph that represents the way a phenomenon changes over time. It can show both the past and the future. They typically use two axes, where the x-axis is time and the y-axis is growth.

Growth curves are used in many disciplines, including sciences such as biology and ecology. They are also used in finance and economics. Businesses can use growth curves to see how a specific market is changing over time. This can help them decide whether to enter or leave a certain market or adjust their selling strategy to account for changes.