The Simple Numbers 100 Shows a Divided Economy
The model, which tracks a diverse set of entrepreneurial businesses, indicates companies with less than $10 million in revenue are growing at less than 1 percent a year.
By Brandon Gray
The headlines have finally caught up. Private sector payrolls are declining and many are wondering if we are in a recession.
At CRI Simple Numbers, we have been tracking the performance of 100 clients since before Covid, and have been predicting a slow down. The tool we use is our 100 Company Model, which is a diverse sample—various industries and geographies—of the entrepreneurial economy. It contains an abundance of data that the Federal Reserve and others do not have.
The trend of stagnation paired with decline has continued. For our Simple Numbers clients, this isn’t new news. I mentioned this in a LinkedIn post back in October of 2024. At that time we had been seeing stagnation for several months and the data was also showing a very divided economy between the haves and have-nots. Currently our Simple Numbers 100 Model is showing revenue growth year over year at 10 percent. Since December 2024, however, this pace has slowed to 7 percent. If you dig deeper and look at companies with less than $10 million of revenue, their growth is less than 1 percent.
Even with revenue growth, profitability remains a struggle. Rolling 12 (also known as trailing 12 months) profits are essentially level since December 2024. We are also seeing a decline in labor efficiency (a key indicator of profitability). If labor were producing the same level of output as it was in December of last year, it would have produced an additional $4.5 million of profit over the past 12 months! Bottom line: inflation and declines in efficiency are wiping out the gains in revenue.
Below is a summary of what we are seeing in general by business type:
High end / luxury: Remaining strong. High income customers are continuing and will likely continue to spend.
Health Care: Remaining strong.
Necessity services and products: Home services (plumbing, HVAC, electrical, etc.), and essential business services remain strong. Customers may not be opting for the top level or most expensive goods / services, but they are continuing to spend when necessary.
Discretionary products and services: The downturn will likely continue. Retail is down, fast / casual dining is down. We have also seen declines in some B2B segments. Marketing, which shouldn’t be discretionary, business coaching, and other professional services have seen a decline.
And the outlook continues to be cloudy. AI is producing efficiency gains, but AI is not a consumer. We need to see an increase in consumer spending to help jump start the entrepreneurial economy. Declining interest rates should continue to help, but this will take some time. Companies that are below $10 million in annual revenue will likely continue to face challenges. Real inflation is running at 5 to 6 percent and will continue. With limited ability to increase prices, leveraging overhead will continue to be an issue for these companies. We are in an environment where you must be profitable with your current level of gross margin, which likely means right-sizing labor.
Want to learn more? We would be happy to have a call with 21 Hats subscribers to discuss further. Feel free to reach me at brandon.gray@SimpleNumbersCri.com.
