Revenue Growth Models

Your board wants 20% growth next year. Your team hears that number and their souls leave their bodies. 20%??? After they just killed themselves to hit this year's number? Todd Caponi , during this past week's Revenue Manager Lab at Sales Assembly, broke down a formula that should hopefully result in folks who are faced with goals like this exhaling a huge sigh of relief. The Results Formula: Revenue = (Qualified Opportunities × Deal Size × Win Rate) ÷ Cycle Length. Now here's where it gets interesting. Improve each metric by just 5%: - 5% more qualified opportunities (literally one more per rep). - 5% higher deal sizes ($2K on a $40K deal). - 5% better win rate (win one more deal you'd normally lose). - 5% faster cycle time (close 3 days faster). Result: 22% revenue growth. Don't believe Todd? Run it through whatever spreadsheet you want. Change the variables. Use different baseline numbers. ALWAYS comes out to 22%. Try 10% improvements across all four? You get 46% growth. But here's a mistake many leaders make: They pick one metric and try to double it. "We need MORE PIPELINE!" So they hire more SDRs, blast more emails, book more meetings. Pipeline goes up 50%. Revenue goes up 8%. Why? Because they flooded the zone with bullshit opportunities that destroyed their win rate and extended their cycle time. The magic is in the compound effect of tiny optimizations. A 5% improvement is nothing: - One better discovery call per month. - One less discount given. - One deal closed three days faster. - One bigger upsell identified. Stack those improvements. Compound them. Watch what happens. Your team doesn't need to raise their hand another foot higher. They need to raise it one inch higher in four places. Stop asking for heroics. Start asking for tweaks. The math is undefeated.

Which do you think is the most effective growth model: Sales-led, marketing-led, or product-led? 🤔 During my time as a founder, I’ve had the opportunity to experiment with each across a handful of different startups to try and find the perfect fit.  Often, the decision making goes something like this:  Complex, high-value product? 💰 Sales-led growth motion to support high-touch engagement and build deep, authentic customer relationships (which is super resource-intensive and difficult to scale). Lower ACV with a high-volume of leads? 📣 Marketing-led to continue to create awareness and drive acquisition (as long as your ACV stays low and product doesn’t get too complex).  Want to reduce CAC (customer acquisition costs) and be as cost-effective as possible? 🎁 Product-led growth shines at getting users to experience the value of your product firsthand, but requires building both a high-quality product AND a well-designed onboarding experience. So, which model is the right one for your product, team, and customers? Here’s what I’ve learned: They actually aren't mutually exclusive. 🤯 Instead, the most successful companies take a hybrid approach. At Atlassian‎, we started mostly product-led. As we grew, we layered on a sales org (what we called "enterprise advocates") to serve our largest customers.  Ideally, your marketing, product, and sales teams are aligned around shared metrics and common goals. 🎯 When this is the case, you can tap into the pros of each of the three models (and offset their relative weaknesses): 📈 Marketing increases awareness and acquisition ⚡Product improves activation and adoption* 🌱 Sales provides a human touch to reinforce value and expand accounts *NOTE: Your product itself can be a powerful customer acquisition channel (see: Calendly‎, whose product inherently increases awareness and acquisition as more people use it). The key is to understand your product, your market, and your customers. Then, craft a growth model that leverages the strengths of each approach to create a cohesive strategy to match user needs. It's not about choosing one model, but about finding the right balance for your users throughout their time with your product. ⚖️ If you want to dive deeper into my thoughts on finding this balance, check out the webinar I did with the folks at Amplitude‎ a few weeks back (will link in comments).

We analyzed 13,000+ sellers on our platform to understand what actually drives success. What we found: Average sellers reach $10K monthly in 6-9 months. Getting to that first milestone requires: - Proper payment infrastructure - Scaling tools that actually work - Foundation to support consistent revenue 72% of sellers see immediate revenue jumps after adding financing options. Going from first sale to consistent revenue happens faster with buy-now-pay-later. Removing friction at checkout matters more than most people think. Top performers build both models at once. High-ticket offers: $2K-$10K for immediate cash flow MRR components: $500-$5K monthly for predictable revenue This combination is how you get to million-dollar months. What top sellers are using right now: Webinar funnels generating multi-million-dollar launches in 3-hour windows. Automated upsells powered by forced VSL sequences hitting up to 20% conversion rates. High-ticket MRR models: - Agency services at $4K-$5K monthly retainers - B2B consulting with recurring high-value contracts Infrastructure that matters: Instant payouts = faster ad scaling Multiple payment options = higher conversion Geographic flexibility = no location barriers What separates thriving sellers from struggling ones: Thriving sellers: - Build both high-ticket and recurring revenue - Invest in proper payment infrastructure - Use automation to scale - Build reliable operations Struggling sellers: - Rely on a single revenue model - Accept payment platform limitations - Use manual processes that don't scale - Optimize for metrics that don't drive revenue The gap is in infrastructure and how you build.

How do you model out your business? It's not about channels or %. It's about customers. Instead of starting with abstract growth percentages or channel performance, a customer-driven forecast grounds everything in the customer—how many you have, how much they’re worth, and what it takes to get more. It’s a sharper lens because it forces you to focus on the real engine of revenue: people buying your stuff. Let’s break this down and then look at some examples. How a Customer-Driven Model Works The core idea is to anchor your forecast in two key metrics: 1. Customer Lifetime Value (CLV or LTV): How much revenue a customer generates over their relationship with you. This includes repeat purchases, upsells, subscriptions—whatever applies. 2. Customer Acquisition Cost (CAC): What it costs to bring in a new customer, factoring in marketing, sales, onboarding, etc. From there, you work backward: • Set your revenue target (e.g., $10M in 2025). • Divide that by your average CLV to figure out how many customers you need (e.g., if CLV is $500, you need 20,000 customers). • Assess your current customer base and retention rate to see how many you’ll keep. • Calculate how many new customers you need to acquire (total needed minus retained). • Multiply that by your CAC to estimate the investment required. The beauty here is it’s less about guessing “Will ads perform 10% better?” and more about concrete questions: “Can we get 5,000 new customers at $50 each?” It also highlights levers like improving retention or boosting CLV through better products or pricing. Examples from the Wild Let’s pull a couple of real-world cases where this mindset either shines. I’ll lean on public info and reasoning since I don’t have proprietary data. Warby Parker is a poster child for customer-driven thinking. In their S-1 filing (2021), they reported an average CLV of around $250 per customer. Their CAC is roughly $50-$60, thanks to a mix of digital ads and word-of-mouth. Say they want $500M in revenue: • $500M ÷ $250 CLV = 2M customers needed. • They had about 1.2M active customers in 2020. With, say, 80% retention (960K retained), they’d need 1.04M new customers. • At $60 CAC, that’s $62.4M in acquisition spend. Warby’s model works because they obsess over CLV. Compare that to a traditional retailer guessing at store traffic growth; Warby’s approach is surgical and actionable. Traditional YoY growth models (e.g., “We’ll grow ad revenue 15%”) fall apart when channels shift—think Meta ad costs spiking or TikTok bans. A customer-driven model doesn’t care where customers come from; it cares how many you get and what they’re worth. It’s adaptable—plug in a higher CAC if ads get pricier, or tweak CLV if you launch a loyalty program.

How to forecast revenue This is the BIGGEST area of focus in all the financial models I build… and for good reason. Revenue forecasts are like snowflakes ❄️ no 2 forecasts are the same…every company does it differently Here’s my framework that I’ve developed after building over 100 financial models in my career ➡️ Revenue Sources Framework → E•P•N Your revenue can come from one 3 sources: 1️⃣ E→ Existing Customers Here you analyze your current customer contracts Ask yourself the following questions • When will these contracts come up for renewal? • What is the likelihood for renewal? • Will they expand / contract before the contract is up? 2️⃣ P→ Pipeline customers Here you analyze the customers who are warm in your pipeline Ask yourself the following questions: • What is the close likelihood of each contract? • When will the contracts close? You then take the contract value * the close likelihood... and forecast out the sale on the projected close date 3️⃣ N→ New Customers These are customers you’ve never interacted with… but can expect to in the future Here, you move onto the 2nd Framework, the Revenue Growth Framework ➡️ Revenue Growth Framework → A•R•S•R This is all about how you use your business model to close new customers, resulting in new sales 1️⃣ A→ Acquire Here you measure the channels that you use to acquire customers Common ones can be: • Sales reps • Digital marketing • Organic • Partnerships 2️⃣ R→ Retain Now you measure how long this customer will be with you Are they monthly? Annually? Month to month? Once you have this info, you can understand how much you can generate in sales from them 3️⃣ S→ Sell Now that you know how long your customers are with you, you can analyze how often you’ll generate sale from them This can be sales from your New Customers, or sales from your Active Customers 4️⃣ R→ Record Now is when you record all the activity that will hit financial statements Common ones include • Revenue • Deferred Revenue • Cost of Goods Sold • Inventory • Accounts Receivable • Commissions === With this framework in place, you can literally forecast out the details behind ANY business model If you found this post useful, then you’ll LOVE my upcoming live workshop on forecasting that will be launching later this month. Let me know your interest over here: https://bit.ly/3rbVrJd

Recently, we have been working on modeling growth for an early-stage premium D2C brand. Today, many premium D2C brands are built with a content-first, distribution-first approach. i.e., They create content, build decent distribution, and then start the business with that distribution. Once the initial traction is achieved, they move to Performance Marketing & SEO. However, if you are starting without the initial distribution and planning your growth model, consider it from two different angles. - CAC-based growth modeling & - LTV-based growth modeling In CAC-based modeling, we tend to discount the repeated usage behavior of the acquired user. In LTV-based modeling, we over-index the repeated usage behavior of the acquired user. When should we use CAC-based modeling, and when should we use LTV-based modeling?

When we do our revenue builds, we always discuss the best way to segment the sales. By customer? By customer type? By channel? By existing customers and pipeline customers? In this faux business case, we task participants with growing company sales. There are a few ways to consider doing this: 1) Revenues with Existing Customers We have four hospitals in Chicago that we already do business with. We consider what could be done to increase sales with these existing customers. We may consider: Longer-term contracts Higher sell-through More offerings Higher pricing We consider what marketing activities might lead to higher sales. Some groups focus on hiring an agency. Others focus on attendance at tradeshows and connecting with hospital administrators. 2) Revenues with Pipeline Customers This is the primary driver of growth, as you note from the ramp-up over 12 months. But you also see a placeholder for "other". I almost always recommend creating placeholders in business models so they can evolve without formulas breaking or compromising model integrity. In the business case, we reach the conclusion that we will land new customers. But the revenue potential of that new customer is nearly impossible to determine without making speculative assumptions. We can use the pipeline forecasts as benchmarks and run scenarios for each. We can forecast low, mid, and high cases based upon other customer behavior. 3) Other Revenue Channels Like with pipeline revenues, creating placeholders for additional revenue sources is helpful for modeling. In this case, the carve-out isn't for existing or pipeline customers. It's for new revenue channels that we may consider. 4) Total Revenue This is the aggregate of all other segmented revenue. By itself, it's not all that helpful in an operating model. Because it's based upon a revenue build, we can influence the sales from the customer segmentation. -------------------- Financial models tell stories. But it's the supporting schedules that provide the plot.

𝗦𝘁𝗲𝗽 𝗻𝘂𝗺𝗯𝗲𝗿 𝟭 in any good projection: calculate future Revenue. As accurate as possible. That's mandatory!! 𝗣𝗼𝗽𝘂𝗹𝗮𝗿 𝗠𝗲𝘁𝗵𝗼𝗱𝘀 ✔️Historical Trend Analysis - Leveraging past performance to predict future trends. ✔️Market Analysis - Understanding market segments and potential impacts on revenue. ✔️Customer Segmentation - Analyzing different customer groups to tailor marketing and sales strategies. ✔️Sales Funnel Analysis - Monitoring progression through the sales funnel to anticipate revenue generation. ✔️Product Lifecycle Analysis - Assessing the stages of a product's life to forecast sales and revenue. ✔️Econometric Models - Using statistical methods to forecast revenue based on economic and market variables. 𝗢𝘁𝗵𝗲𝗿 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁 𝗺𝗲𝘁𝗵𝗼𝗱𝘀 ➡️ Driver-Based Forecasting: Focusing on key business drivers like unit sales, market share, or operational efficiency, this method provides a granular view of forecasted revenue, allowing for more targeted strategy adjustments. ➡️ Rolling Forecasts: Instead of static annual forecasts, rolling forecasts update throughout the year to reflect real-time market conditions and business outcomes, providing a more dynamic financial outlook. Curious to know how you all manage forecasting? What methods do you find most useful?

Revenue doesn’t grow because of forecasts. Forecasts work because of revenue drivers. In financial planning, strong growth assumptions are built on four core pillars - not guesswork. → Frequency, Volume & Price How often customers buy, how much they buy, and the price they pay. This is the foundation of every revenue model. → Business Model Signals Customer satisfaction, retention, CLTV, market share, and brand strength determine how predictable and scalable growth really is. → Volume Drivers Growth from selling more - new product launches, customer acquisition, and expansion across markets and channels. → Price Drivers Growth from capturing more value - bundling, smart promotions, premium positioning, value-based pricing, and AI-driven optimization. If your forecast can’t explain growth through these four pillars, it’s not a strategy - it’s an assumption. 👉 Which pillar is driving your growth right now? Credit to original #FinancialPlanning #RevenueGrowth #BusinessStrategy #Forecasting #GrowthDrivers

If you’re a recurring revenue company and you haven’t significantly shifted away from the strategies & tactics you used in 2020 or before, you may end up wasting a lot of time and money AND not achieve your goals. I believe this is especially true for companies that range from $5M to $250M in ARR. I can’t say it enough - the way companies were measured in the 2010s is no longer the same. During those years, a high acquisition growth rate meant a high valuation, and a high valuation equalled success. So companies did anything to get those acquisition Growth Rates high. Unfortunately that often resulted in a very high cost of acquisition, which wasn’t balanced on the back end with a focus on keeping & growing those accounts. Many closed deals outside of their ICP, and they churned before your costs were covered. Growth Rate looked great, but as soon as you dug into the unit economics things were far from healthy. You can't go back to those strategies. So what to do instead? You don’t need to guess! We KNOW what leadership teams need to do to understand what is working and not working and use that information to get the ship steered in the right direction.  And you can do it yourself or get help if you need it. The answer is Revenue Architecture.  Revenue Architecture is a scientific approach using models, data, first principles and known patterns to analyze your business, see what’s working, and see what you need to change to achieve sustainability and profitability.  If you apply Revenue Architecture properly, you will have an analysis that provides root causes and that helps you build a roadmap that leads directly to your goals. Now, you DO need to do the analysis properly. You can't rely on gut feel, or the replication of approaches you used to use. BUT, the time spent to run a proper analysis using Revenue Architecture is worth it to avoid wasting time and money on the wrong things. And you can do this work yourself. Take the Revenue Architecture course and the Bowtie Analytics course to learn how to do this analysis, and/or read the Revenue Architecture book.  Understand where your company is on the Growth Curve, what gaps exist in your foundation, and what unit economics need to be addressed. Find root causes of your challenges and prioritize the steps to move forward. If you don’t have time to learn how to do this work yourself, get Winning by Design to do a Diagnostic that will give you the status of your company’s health as a system & prioritized recommendations about how to get it on track. Use that project as a way to learn how to apply Revenue Architecture yourself so that you can do the analysis in the future - ideally at least once a year.  Don’t waste any more time. Use Revenue Architecture to get you and your company on the right path forward for 2024!  https://lnkd.in/gb3SE-M2 #revenuearchitecture