Three steps to building your growth model

One of the first things you need to do before starting any growth experimentation is to understand your growth levers, one of the best ways to do this is create a growth model. The concept of business modelling has been around for a very long time and a growth model is similar, the main difference though is that the model is built for experimentation, it’s a tool for prioritisation of your work and to assist in decision making, not for predicting revenue.

I’m going to run through the basics of a growth model and what it includes. Every business will look different however the concepts are usually the same. You need to know what your ‘ah ha’ moment is, or your metric that matters, you need to understand the channels that assist with customer acquisition and finally understand if you are keeping those customers.

1. Find your metric that matters

This will really depend on the type of product you have and what makes sense to measure. Like any business model, whatever your metric is, it needs to have a direct impact to revenue but not necessarily be a revenue metric. It also needs to be related to customer value (often referred to as the ‘ah ha’ moment). If we take an example like Facebook, a growth metric might be daily active users. However, if you compare that to something like HealthEngine, an online marketplace for health appointments, daily active users doesn’t make much sense. Instead, we use a transaction measure of a booking and rather than daily we use a 12 month period or a yearly active user.

So once you know what your metric is and the timeframe that you should report on, you can start building your overview. Below is an example of a growth model overview using yearly active users. When you start this process don’t worry about getting the inputs, just start with the structure first.

Growth model overview table

 

2. Find your growth levers

Once you have your top line overview you need to complete the inputs. One place to start is the acquisition summary. What channels are you using right now that you can attribute to growth? If you are an established business you will probably be have 2-3 main channels that drive growth. Summarise those channels and break down performance of each step, this will allow you to recognise areas of opportunity and allow you to use the model for experimentation and prioritisation.

Here is an example of what this might look like for an organic growth channel. A simple table like this can help identify if you should be working on driving traffic or improving conversion. It will also clearly identify what channels are important to your metric.

Organic growth channel table

 

3. Retention is king

Retention can make or break your business and is the most important part of your growth model. If you’re successful in acquisition, it will be pretty short lived if you don’t keep the customers you acquire. So, how do you model retention? The best way to do this is through cohort reports, look at how many customers you acquire in a period of time and the percentage you retain over time. It’s likely you will see trends in retention and if there is a problem the model will highlight it. The retention report will allow you to complete the churn input in your overview. It will also allow you to experiment within cohorts and see impact more easily.

Below is an example of a retention model. There are two tables, actuals and percentages. The percentages allow you to see trends and the actuals help with the inputs to your model.

Retention model table

 

At HealthEngine there was a huge amount of work completed to figure out our metric that matters, it involved deep analysis to ensure it was the right one. We also needed to implement a range of changes in our web analytics. My point is our model didn’t come together in a day. But once complete it changed the work we focussed on – we built our ideas backlog based on the data and prioritised these. Decisions made by data. We had huge success in the first month with a 30% incremental increase in acquisition (our first focus for a team of three). Following this success the model has evolved, we’ve become more sophisticated as a growth team and invested in growing the team, in the first six months we are a team of nine but looking to extend further with another four vacancies currently in the team.

Wondering what it’s like working in a growth team? Read my article on the In’s and Outs of a (Start-up) Growth Team here.

Tara Heath, HealthEngine Growth Marketing Manager