The PIMS Study: What 3,000 Business Units Reveal About Profitability and Investor Expectations
The PIMS Study: What 3,000 Business Units Reveal About Profitability and Investor Expectations
PIMS stands for “Profit Impact of Market Strategy”. It is a massive database of over 3,000 business units (BU), collected by the Strategic Planning Institute over decades.
The insights from PIMS have changed the way companies and investors think about profitability.
The PIMS key findings
1. Market share is highly correlated with profitability
- Top 1/3 Market Share: Average 22% ROIC
- Middle 1/3: Average 14% ROIC
- Bottom 1/3: Average 7% ROIC
That's why "scale" is so important for investors. A higher market share = higher ROIC = higher company value.
2. Quality correlates more strongly with profitability than market share
- High quality + High market share: 22%+ ROIC
- Low Quality + High Market Share: 8% ROIC
This is counter-intuitive: market share alone doesn't make you profitable. But quality combined with market share is very attractive.
3. Investment intensity reduces ROIC
- Low capital intensive (e.g. service, software): 20%+ ROIC possible
- Highly capital intensive (e.g. manufacturing): 10-15% ROIC realistic
This is why VCs love SaaS over manufacturing. SaaS can achieve 60%+ margins and 20%+ ROIC. Manufacturing is structurally capital intensive.
How PIMS works in practice
You can use PIMS logic in your pitch:
- Benchmarking: "Companies in our segment with similar market share and quality average 18% ROIC. Our current 12%, but with scaling we should achieve 20%+."
- Valuation Justification: "After PIMS, our ROIC with Scale should increase to 22%. That justifies a 3x valuation."
- Strategic Options: "We could focus on scale (higher market share) or focus on quality (higher margin). PIMS data shows that quality > scale."
The PIMS portfolio management concept
PIMS has also helped define portfolio management. The idea: Not all BUs should focus on growth.
- STARS: High market share, high growth → maximize investments
- CASH COWS: High market share, low growth → maximize profitability
- QUESTION MARKS: Low market share, high growth → make a decision
- DOGS: Low market share, low growth → Diverstify or Exit
This is the basis of the BCG matrix (which weearlierdiscussed).
Klassische PIMS-Quellen
- Buzzell, Robert & Gale, Bradley (1987):The PIMS Principles: Linking Strategy to Performance. Free Press.
- Strategic Planning Institute:PIMS database (still active)
If youYour ratingandValue orientationargue, use PIMS logic. It will make you more credible.
Your path to more capital
Let's analyze together which financing strategy is optimal for your company.
Kostenloses Gespräch buchen