July 15, 2021
Growth modeling is an absolute must in every marketer’s go-to tool stack. In this article, you’ll explore why you should use it and how to make the most of it.
What is the one equation that describes our business?
Tomasz Tunguz, Venture Capitalist at Redpoint
Answer this question and a whole new universe of possibilities opens before you. Find the vital metrics for your business and take them apart to learn what influences them. This alone will show you what to look for in your analytics and what to focus on in your marketing activities. Thus, the data will become your powerful friend.
There’s over 84% of websites that use Google Analytics. However, this isn’t proof that all of them are set up correctly or track any specific goals, or the marketers who configured them knew the business’ key metrics. That may be the reason why in 2018, basing more decisions on data analysis was the objective for over 50% of marketers.
Companies already were aware of the value data has for them. However, they didn’t know which metrics to focus on, which ones will bring the most growth. It’s no surprise then that growth modeling comes up more often.
As all or at least some decisions should be based on data, you should become friends with analytics. Those numbers show all the growth possibilities out there and allow you to build powerful strategies focused on attaining your goal. So, you will be the one who will let the data model business’ growth.
To use the numbers gathered in the analytics tool and prepare possible scenarios of growth, you can use either Excel/Google Sheets or a modeling tool that does all the calculations and builds a growth model for you.
What a growth model is? Here are definitions from a few articles that look at this matter from a marketing point of view:
A growth model is an equation that tells you what are the different variables in your business and how they work together and translate into growth.
This indicates the similarity between a growth model and a business model. However, the latter is a more strategic document, while the growth model goes into much greater detail. It tells us what particular elements contribute to achieving specific goals. Also, it can indicate what areas of the funnel should you concentrate on.
It’s a new concept for an old idea about creating a simplified high-level model in order to make better business decisions. You’re trying to explain “how does this company grow?” What levers exist as inputs that contribute to “growth” as an output (however you define growth)?
In other words, you’re trying to explain how growth works in your company. What channels bring the best results? How do they contribute to the bottom line? Pulling which growth levers will result in the biggest output? And all other questions you can think of, business-wise.
Growth models… are feedback loops that project how one cohort of users leads to the acquisition of the next cohort of users. Viewing growth with this reinforcing model simplifies a complex system with tons of moving pieces to a set of functions and assumptions.
Segment, found on alexbirknett.com
That sounds just great but only if you have data on the first cohort. Usually, the best would be data gathered from at least several weeks. Otherwise, when you’re starting anew and have no data to look at, you have to rely on third-party benchmarks. You can find those in various researches available online or sources like Adjust that provides you with the overview of the vital metrics.
Remember that if you want to focus on the full funnel or just on its specific stage, it’s important to understand the entire setup to know how each part of the funnel affects another. Depending on how many stages and platforms your funnel includes, the model will reflect its complexity.
When you think about growth, how do you perceive it? Is it a straight line? A picture-perfect situation where everything runs smoothly, and you see improvement each month?
Or is it more of a bumpy road you need to work hard to get through? With ups and downs, surprising turns, and unexpected dead ends?
From my experience, it’s the latter.
And here comes growth modeling. To help you predict those dead ends, highs, and lows.
Even though it’s only a prediction based on generated data, it shows you how much growth you can expect with presented benchmarks. It’s not 100% right, but at least it will be something to compare real performance to.
You need to remember that like in every economy, a business has limited budgets and resources. Using them in the best possible manner to reach business goals means saying Yes to a few ideas and No to most.
Like in every economy, a business has limited budgets and resources. Using them in the best possible manner to reach business goals means saying Yes to a few ideas and No to most.
And the more plausible the specific action is, the more likely it is for the stakeholders to agree on it. Despite it being a forecast, a growth model is more credible than improvising with various ideas that aren’t supported with data. There is no guesswork here. It will present you with arguments for or against focusing on a specific metric. You may even find bigger opportunities out there for you to jump at. Thus, you will be able to use those limited resources well.
Though to use the full potential of growth models, you need to update them regularly with actual results, once you put it to work. This will help you validate what worked and what didn’t. Plus, you will provide a solid base that will make future predictions more accurate, taking you closer to attaining your goals.
Capital efficiency and understanding the levers in your business model needs to become the top priority to make sure you have the best shot at long term success.
Alex Oppenheimer on Medium
Besides all those things mentioned above, what Alex Oppenheimer said should be a sufficient answer. However, there’s much more to what you will gain from growth models than that.
Overall, you’ll be able to build a strategy based on the model and provide your stakeholders with a credible forecast of what your plan can give them. Thus, you show them your train of thought, how deliberate is your plan, and build trust on that basis.
However, you need to remember that no matter how much effort you put into your marketing activities, there’s nothing you can do if a product (for example a mobile app) isn’t developed well. You can only steer the developers into a problematic area.
No matter how much effort you put into your marketing activities, there’s nothing you can do if a product isn’t developed well.
There’s a couple of things that are included in the growth model:
In Ladder, we recognize two types of growth models:
It’s good to get data from campaigns that have been running at least several weeks, preferably a few months or even more than six months. This way, you’ll have enough data about such metrics like cost per click, budget impact on lead generation, conversion rate, and others.
As you progress through the campaigns, there are a lot of forecasts that will turn into “actuals”. It’ll update your model to how things look at the moment and show you how this newly generated data impacts your forecast.
You can either use Excel or Google Sheets to write down all the calculations. Or, you can use a tool like Causal that will do those calculations for you and present them on diagrams.
As Excel and Google Sheets may be something familiar to you, let’s go through the process of building a growth model in Causal.
Here’s how the built growth model will look like:
Whenever you build a growth model, it’s best to remember to:
And other than that – be ready to grow.
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