The benefits of data driven growth modelling

As an operational-minded CFO, I believe Finance needs to be at the heart of the business. It needs to be focused on operations and involved in all departments to truly be able to budget, plan investments, improve and develop people, and grow the client portfolio in order to maintain its financial health. The best way to do that is by building a reliable growth model from start to finish.

How to create a sophisticated growth model

Gather data to build the model on

The way we make decisions at growthCFO is based on looking into validated data. We use platforms that provide us with benchmarks, which allows us to get numerous different kinds of data from our clients, such as the cost of acquisition form, cost of registration, cost of lead, etc., and take into consideration various parameters such as their industry, business model, where your product is based (app or website), geographical location and budget, to provide a more accurate view. These insights reveal very important growth KPIs that we then convert into a model.

Choose the right metric to start the analysis from

When we are planning, we don’t start with your typical business-relevant metrics, such as conversions or registrations. We run a regression analysis to find the strongest correlation against your qualified leads, which might be paid media, organic, blog or anything else.

Use the analysis to get clear predictions

We take all the data available to us, from blog articles, to subscriptions, monthly posts, paid advertisements, media fees etc., and create a regression analysis model to see what actually drives traffic to your website, and statistically approve those factors when we build our analysis. That way, we have a clear prediction of how many people will visit your website, how many of those will be converted into potential leads, how many of those are qualified leads, and how many of those will close and become your clients. The predicted values produced from the statistical models are accurate compared to the actual values to the level of statistical significance.

Observe how changing the inputs changes the outcomes

These inputs are the starting point, and because they are correlated with your top-funnel metric, the outcome changes as well when you change them. It is all automated and built into a dynamic model. Then, we anticipate the investment needed in certain areas to have a certain number of conversions, qualified leads, and new clients. All the models we’ve built are dynamic, including the next 3 years, and are made to be automatically re-forecast based on actual data.

Using the growth model to plan investments and predict revenue

At that point, it’s much easier to go into the revenue because you know the average package you have per client and the average price per package. You should know exactly which costs are coming attached to the new clients and the fixed costs and overheads attached to your people. The moment we change our inputs, the entire model changes based on the data and the analysis we made, and we effectively create our P&L and growth model for the future.

Obviously, some areas are going to have a lag - for example, when you post an article, you don’t expect to have conversions right at that moment. We consider the lag as well. If we change how many articles you post per month in the model, you don’t see the conversion that month or the next, but we definitely see them down the line, and we know how much money to invest in which area.

Using the growth model for hiring

The growth model also solves the problem of finding the right balance between overhiring and underhiring. There is a significant correlation between clients and team members. Obviously, every business needs the relevant people to provide high-quality services to their clients. One element of that is quantity and resourcing; the other is to have the right people for the job. With the growth model, we can predict how many clients how much new business you will have and what impact that will have on your revenue. Then automatically predicts how many people you need and what seniority they need to be, so you can be prepared for hiring.

Another thing to consider when hiring people is time zones if you are working remotely, as many of our clients do. Where to hire people can be a strategically tricky question - a five-hour time difference between clients and team members is a potential problem. By knowing where you can anticipate having your next client, you can be prepared to hire the right people in the right place at the right time - obviously, well ahead of time. 

What the process of growth modelling looks like

From our side, this is what the growth modelling process looks like:

• We run a regression analysis with the existing client data to see what drives the traffic and the correlation between marketing efforts, paid or organic, and qualified leads

• We use Growth Benchmarks platforms to get the data for growth modelling
• We compare the data with similar companies in the industry
• We create the growth model from the data
• We create and optimise metric-focused actionable strategies 
• We outperform the benchmark for the metric

Growth modelling is at the core of what we do at growthCFO, both on the client and internally. It lets us accurately predict outcomes, allowing for greater control of our investments, and can be applied to any business to achieve remarkable benefits.

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