Napkin math – get good at it to get ahead

“Napkin math” is how executives analyze options quickly. You don’t need a MBA to know how to do it.

👋Hi, it’s Greg and Taylor. Welcome to our newsletter on how to make high-stakes professional and personal decisions in your 30s.

Read time: 10 minutes

The first week I met Greg, I was intimidated by his napkin math. Scott Galloway (our founder) had asked Greg to come to NYC to check out Section and the team. That week, Greg and I met for breakfast and he told me we needed to figure out if we could build a $100M/year business. 

He started doing math out loud – fast. “We know there’s 60 million knowledge workers in the U.S. Let’s say 20% of them would take business courses, but only 10% take exec ed. That’s 6 million knowledge workers – if 2% converted at $1000 per year, that’s a $120M business.”

Honestly, I’m pretty good at math, but I just pretended to follow along. Really I was thinking, “How is he doing that so fast?!”

This skill is what we call “napkin math.” And it’s a critical skill in making good, fast initial decisions – and deciding where you should spend your time. 

After that meeting, I quickly realized that if I wanted to be valuable (and seem valuable) to Greg, I had to master napkin math. Today, we’ll walk through what it is, why it’s important, and how to get good at it … even if math isn’t your strong suit.

– Taylor

Napkin math answers the question, “Is this worth our time?”

Napkin math means using quick, back-of-the-envelope assumptions to size an opportunity or problem.

It helps you answer the question: “Is this worth our time?” – AKA, should we pursue this project, hire this FTE, invest in this partnership, or fix this problem?

Napkin math is not a fully-baked analysis. It’s a way to quickly sort ideas into what you should pay attention to, in a world with tons of different opportunities or risks. 

It has three components:

1. Inputs – the variables that drive the situation (e.g., what’s your existing audience, how many people will convert, what price will they be willing to pay). This is the most important part of napkin math. 

2. Assumptions – your rough assumptions of the value of the variables – these don’t have to be exactly right. Half the battle is quickly getting an assumption out there that others can react to. Doing this also allows you to see at what assumptions an outcome would happen (e.g. a $100M/year business) and then decide how likely those assumptions are.

3. Math – the calculation of inputs x assumptions (e.g., 60M knowledge workers x 10% adoption at 2% conversion x $1000 assumed price).

Napkin math is most impressive when you can do it out loud, on the fly. But it doesn’t need to be done in your head to be valuable. It just has to be done quickly – either right before a conversation, during a conversation, or very quickly afterwards.

If mental math isn’t your strong suit, practice it privately, and use a calculator or a spreadsheet. The more you do it on your own, the more you’ll be able to do it with other people. 

(And frankly, checking your work (or others) with a calculator is a good idea anyway. Sometimes Greg’s mental math sounds impressive… and is wrong. But his assumptions are usually good, or at least a good starting point to have a conversation.) 

Why napkin math makes you more strategic

1. It’s how executives think – especially CEOs. 

Executives think in napkin math, but they don’t often express it this way. Their ideas might seem random or like distractions (e.g., “Should we launch this random product?”), but if they’re a good CEO, they’ve usually done some napkin math in their head to size the opportunity.

2. It’s the quickest way to vet and respond to ideas, problems, and opportunities. 

As a leader, you’re presented 100s of opportunities that you could pursue. Lots of opportunities get stuck in the “idea phase” because people aren’t willing (or confident enough) to size the impact and say, “No – not worth it.” or “Yes, there could be upside here”.

Napkin math allows you to form a quick POV on the scope of your problem or opportunity. Big enough to be worth your time? Great, proceed. Not that impactful? Shelve or ignore. 

3. It’s your best tool to strategically push back, advocate for an unpopular idea, or advance your agenda.

Napkin math quickly reveals whether or not an initiative can be linked to your company goals – revenue, gross margins, etc. If it can, napkin math is a shortcut to getting the green light from your boss. If it can’t, it’s a lot easier to shut down an initiative that will waste your team’s time. 

Examples of napkin math in your day-to-day work

Napkin math is all about deciding – is this worth thinking about/talking about/investing in? There are two common scenarios that prompt napkin math:

1. Size a problem

2. Vet an opportunity 

Here’s an example for each.

1. Sizing a problem – should we worry about this?

Our example: Last week, we released our mobile app at Section. Our head of engineering asked if we were okay emailing about it to our members, knowing there may be a few bugs. 

Napkin math: I asked for the scope of the potential problem – how many people might experience this beta version of the app? Our membership base is around 20K, and our member emails have a 40% open rate and 2.5% click through rate – meaning 200 people would view the app in the app store. Even if we assume the click through rate is 4X (given that this is an exciting announcement), that’s 800 people viewing the app store. If we assume 50% of people download the app, we’re talking about 100-400 downloads. If even 5% of these people experience a bug, that’s only 5-20 users (or 0.12% of our total members).

Implication: We did this live on our weekly product roadmap call, and it became apparent to everyone the risk wasn’t too high. We prepped our support team and released the app. 

Of the inputs above, about half were known (list size, open rate) and half were assumptions (CTR and download rate). 

Our assumptions were a little off – we ended up with 750 downloads across Android and iOS (so were too conservative in our assumptions). We had about 25 support tickets (3% of downloads), and discovered one larger bug with a portion of users unable to login. So we didn’t mitigate the risk completely – but we were able to size it, understand what to expect, and prepare.

2. Vetting an opportunity – what makes this worth considering?

Example: We’re building an AI chatbot at Section, and one of our goals is to use it to drive user retention. Our vendors bid $100K to build our initial prototype, and Greg and I needed to quickly understand the level of return that would justify this cost. 

Napkin math: Initial bids were for $100K, but let’s assume $250K for a fully working pilot bot. With 10,000 new consumer members this year and a 40% renewal rate, we’re projecting 4,000 members renewing next year. 

Now we need to make some assumptions. Let’s assume that with the chatbot, renewal rates increase to 60%, or an incremental 2,000 members. I’ll assume their average renewal price is $900 (slightly discounted from our list price). That’s an incremental $1.8M in revenue. 

If renewal rates only increase slightly – say to 45% – the math gets less compelling ($450K incremental revenue), but still more than the $100K-$250K investment.

Implication: In these scenarios, you’re trying to 1) size potential upside and 2) understand at what point the investment would justify your time/cost. So here, we want to know what renewal rates justify this investment. 

Even with a slight bump in renewal rates, there’s positive ROI, and the upside here is significant – $1.8M in incremental revenue matters to us. 

The biggest assumption here is future renewal rate – the rest of the inputs (current renewal rate, AOV, and # of members) I know, or can quickly validate after this discussion. But by throwing out an assumption to react to (60%), it allows Greg and I to understand what our success metrics should be and to size the potential impact of the opportunity. 

How to get better at napkin math

Don’t panic if you’re not great at doing math problems in your head – you don’t need to be. But you do need to be confident making fast assumptions and pulling out a calculator or spreadsheet to run through scenarios. The more you practice on your own, the better you’ll be in front of your CEO.

Here are our tips:

1. Give yourself 10 minutes, and role play napkin math by yourself. Pretend you’re in a meeting and are asked to estimate the impact of an initiative. What are the inputs? What fast assumptions can you make? Can you do the math on a calculator, or are you more comfortable in Excel?

2. Start small and practice with everyday examples. What would it cost to bring on a certain vendor, and how much time would they save your team? What’s the cost-benefit of a new product feature you’re considering?

3. Once you’re comfortable doing napkin math by yourself, practice doing it on a white board (or on a shared screen with Excel) with someone else – a mentor, an analytical coworker, even your partner. You can use AI to generate and check assumptions too (though make sure to check its work – it’s not always great at math). 

4. Finally, move to doing napkin math with an exec or in a higher-stakes situation. If you’re nervous, start with someone you trust, and tell them you’re working on this skill. 

Our advice

Good leaders are great at ruthless prioritization. They filter through potential options (opportunities or problems), quickly decide what has potential impact, and then get their team working on it. Napkin Math can be a powerful 2-for-1, helping you understand potential upside or impact and get others on board with the plan (when the math is done together).

Getting good at napkin math is all about having the courage to make fast, smart assumptions – the % of users that convert, the cost of an initiative, the potential size of a market. You have to be okay with being wrong and changing those assumptions after you do the math. But if you’re great at napkin math, you’re great at moving the conversation from “we could consider X” to “we should consider X.”

Napkin Math is a leadership skill. So start small and practice on your own, but then quickly move to testing this skill with others – over Zoom, on a white board, in a spreadsheet. Now, you are leading others to better decisions faster.

To the next 10 years, 

Taylor & Greg