Why Agencies Need Growth Modelling

How does one forecast top line revenue growth in a way that isn’t just extending the trend forward from previous years or making up numbers out of thin air 

We do this through a process called growth modelling.

Growth modelling is the detailed mapping of what we want to see happen in the coming year. Not only how much revenue growth we want to achieve, but when we will achieve it and where it will come from. It’s where we answer the questions: what will we sell, who will we sell it to and when?

I’ll draw a quick comparison to bring this concept into focus.

An audience persona is a semi-fictional representation of your ideal audience.

This is Nancy, your ideal client. She does this, she does that, here is why, etc.

A growth model is a semi-fictional representation of your ideal year.

We will land 3 AOR clients and 7 projects. Here are specific dollar amounts for each. Here is when we will land each of them. Here are the industries, company types and services we will provide for each.

The process of imagining your ideal year, with this level of detail, can quickly illuminate whether or not your goals are realistic. Perhaps your goals are too big. Perhaps your goals are too small.

It forces you to take a hard look at what would be required to achieve different revenue targets. The number of clients you would have to land, the size of each account, and how frequently you would have to land them.

This then informs the how. What would you have to do, from a marketing perspective, to make this happen. And that understanding provides a runway to reverse engineer the metrics you’ll use to design your marketing program.

REVERSE ENGINEERED MARKETING METRICS

To fully understand the reverse engineering of your marketing metrics, we must first acknowledge how accountability flows through the organization.

To achieve your new business revenue targets, you’ll need to generate a certain number of leads, convert a percentage of those leads into meetings, convert a percentage of those meetings into proposals, turn a percentage of those proposals into new clients, onboard those clients successfully, hand them over to your accounts team, execute the work effectively, keep the client happy, complete any projects, collect payment – and do so all within a specified timeframe to achieve your revenue targets.

That string of dependencies should be understood and mapped.

With this understanding in place, we can reverse engineer each step in this process to develop and set metrics along the way that will ensure we meet our revenue targets, assuming we can execute our marketing plan effectively.

This is best illustrated through a simplified example:

AGENCY X

Agency X offers brand development services.

They build a growth model and determine next year’s new business revenue target to be $200,000. Consisting of four $50,000 branding engagements (one per quarter throughout the year).

They typically require 5 qualified meetings to be asked to deliver 1 proposal.

Based on past proposals or pitches delivered, they typically close on 1/3 proposals.

Therefore, they need 15 qualified meetings to close one $50,000 deal.

15 meetings = 3 proposals = 1 x $50,000 deal

This means they need 60 qualified meetings to achieve their annual new business target of $200,000.

60 meetings = 12 proposals = 4 x $50,000 deals = $200,000

Let’s pause here for a moment. I first want to point out that the primary goal of your marketing efforts should be to generate qualified new business meetings. Understanding how many qualified meetings are required to achieve your annual growth target is an incredibly powerful metric – and first step – to building an effective marketing program.

Agency X has determined they need 60 qualified meetings per year, which is 15 meetings per quarter, 5 meetings per month or 1.25 meetings per week.

This leads us to the next logical question:

What is required to generate 60 qualified new business meetings?

To generate 1 qualified meeting, 20 people must click a link from a marketing email that takes them to a landing page where they can see an offer with pricing. The fact that they’ve seen the pricing and still want to meet is what qualifies them. To look at this another way, of 20 people who click a link from a marketing email to view your offer on a landing page, 1 of them will request a meeting.

Therefore, the math is as follows:

To generate one $50,000 sale, we must send 3 proposals, which requires 15 meetings, which requires 300 clicks.

300 clicks = 15 meetings = 3 proposals = 1 x $50,000 deal

To meet our $200,000 sales target, we must send 12 proposals, which requires 60 meetings, which requires 1200 clicks.

1200 clicks = 60 meetings = 12 proposals = 4 x $50,000 deals = $200,000

That 1200 clicks also needs to be spread out evenly throughout the year, converting to a metric of 100 clicks per month (or 23 clicks per week).

The next step is determining how to achieve 100 clicks per month.

That’s where your marketing strategy comes into play.

Your entire marketing strategy can then be built around achieving those 100 clicks per month.

Armed with reverse engineered marketing metrics, you can develop a thoughtful and precise marketing plan. You can determine how many people you need to reach, how many campaigns it will require, and when to launch them.

This is how the world’s best marketers build their marketing plans.

“An unsophisticated forecaster uses statistics as a drunken man uses lampposts – for support rather than illumination.” – Andrew Lang, Novelist