Growth Models and Measurement Plans: What are they and how do we use them?

By Logan
Estop-Hall

Unlocking Business Growth: A Guide to Building a Growth Model

As a strategic consultancy we understand the importance of having a solid plan for growth in order to achieve a company’s strategic objectives. That’s why we’re sharing our expertise on the topic of Growth Models and Measurement Plans, and how they can help businesses achieve their goals. This is an opening summary on the topic, with more detailed posts coming later.

Growth requires a systematic approach to performance measurement, resource allocation, and operational work. If you have a great business with a competitive strategy, a competent management team, and sufficient resources, you’re in a good position to grow.

What is a Growth Model?

It is a performance trajectory that helps a company reach its strategic objectives.

Essentially, it’s a periodic extrapolation of key performance metrics over time, based on a known base performance (i.e today’s performance). However, it’s important to note that a Growth Model is a model, not a prediction, and it will change over time as more data becomes available.

To see this model click here [note its basic excluding margins in lifetime value calculations]:

growth strategy model example

How to Build a Growth Model

The goal of building a Growth Model is to identify areas where the business may be weaker or stronger than expected, and to focus growth efforts where they will have the greatest impact. To build a Growth Model, there are several components or stages:

1) Stack Modelling

This involves modelling a quantified version of the business model and customer journey for a single time period, such as one month. It involves mapping the customer journey into measurable data points, such as conversion rates, to deliver revenue.

stack model of growth model

2) Forecast Modelling

This involves applying growth rates to performance metric improvements over time to extrapolate future performance.

This stage also involves negotiating realistic growth rates with operational stakeholders, because targets presented to investors and board need buy in from those delivering on them.

growth rates of performance metrics

Core lever identification

As a Growth Strategist, it’s important to focus on the metric with the highest ROI. Lever weight modelling can help identify which levers have the greatest impact on the bottom line.

The chart below indicates low cost traffic acquisition and upsell would be valuable components of a growth strategy.

  • scenario 10: 50% reduction in CPS would have the best ROI
  • scenario 4: reducing the ARPU would have the worst ROI – from a unit economics perspective
lever weight modelling to identify most important growth metrics to a business

To see this model click here [note they are basic for the sake of explanation]:

scenarios to determine growth strategy focus

Measurement Planning: Actual vs. Forecast Mapping

This involves comparing actual periodic performance (say in weekly SCRUM) vs planned performance, and identifying areas where the growth strategy may be underperforming or over-performing.

With this knowledge the growth lead can allocate team resources to solving for that bottleneck with growth marketing and product testing. This is agile marketing, with rapid periodic feedback on a range of ‘health metrics’ for the growth strategy.

A Growth Model is never perfect, but it provides valuable insight into the performance of a business and helps growth teams make informed decisions. And by using a Measurement Plan, businesses can monitor their performance over time and make necessary adjustments to their growth strategies.

It is worth understanding to measure performance requires a robust Data Strategy across the business, as the old saying goes – ” junk in equals junk out”. Therefore a clear plan of how your business acquires, stores and processes data is critical.

To wrap up…

Growth Models and Measurement Plans are powerful tools for businesses looking to achieve their strategic objectives. By following a systematic approach to performance measurement and resource allocation, businesses can optimise their growth strategies and achieve their goals.

If you’re a founder CEO or executive interested in learning more about these tools, please don’t hesitate to get in touch with us. I’d be happy to share my expertise and help you take your business to the next level.