Project Brief: Building the Growth Model for your Organisation

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Growth modeling is a systematic approach to understanding, measuring, and driving growth in a business. It helps identify the key problems that need solving and the core levers that your organisation needs to double down on. Here’s a detailed step-by-step guide to help you through this process.

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STEP 1 | Decide your northstar metric

This depends on your business model and the goals commonly picked by them. As per stage of your company your NSM changes over a period of time. For example -

Facebook

PMF stage
% activation rate
% new user retention

Early Scaling

#  engaged sessions

# average time spent

Mature Scaling

%  revenue retention

#  active advertisers

#  session frequency

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Amazon

​PMF

% activation rate

% new user retention

Early Scaling

%  Retention

#  paying customers

#  frequency of purchase

Mature Scaling

%  revenue retention

#  paying customers

#  frequency of purchase

$  Average order value

#CAC to LTV ratio

Spotify

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PMF

% activation rate

% new user retention

Early Scaling

%  Retention

#  engaged sessions

#average time spent

Mature Scaling

#paying subscribers

% paid subscriber retention

#  active advertisers

#  session frequency

$  Average CPM

#CAC to LTV ratio

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​​STEP 2 | Build the growth equation​

The idea here is to put down the NSM and the two levers that impact it. Next you should go deeper into those two levers. So if your NSM = A+B then you need to break this down further by identifying metrics that make up each of these levers. For example -

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​STEP 3 | Collate current metrics of your product

Based on different components of your growth equation, you will need to put together the relevant data.

For example, if revenue is the NSM then you need to collect the data on the following -

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​STEP 4 | Establish the nuke scenario​

Calculate the impact on your NSM in a nuke scenario case

​Here’s a template you can use to input your data and calculate users in M12 if there there is no acquisition of new users. Once you have this number, you will need adjust your goal aligned to your NSM accordingly.

​STEP 4 | Calculate Incremental Growth

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Once you have built your growth equation and figured out your numbers in the case of a nuke scenario, you will now have a general idea of the problems that will need to be solved to meet your goal. bAsed on this, calculate the incremental growth in different aspects of your product.

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Incremental growth, refers to the additional growth that is achieved by making improvements in various aspects of the product or service. These aspects include onboarding, retention, engagement, and monetization.

This can be calculated by comparing the current performance metrics to the target performance metrics after implementing specific changes or improvements. Calculating this will give you an idea of which broad lever you will need to double based on what has the maximum impact on you goal. Here are a few examples-

​Here’s a template that can help you understand how you can build this on a sheet and do your calculations. Note that the formulas and input data in this sheet is specific to when revenue growth is the NSM.

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​Template for SaaS

Template for e-commerce

Template for advanced growth model

Simplified template

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​STEP 6 | Identify your core levers

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Here, you need to pinpoint the primary levers that has the maximum impact on your NSM.

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For example, based on your calculations in the incremental growth stage, you’ve come to the conclusion that monetization is the one lever that has the maximum impact on your growth objective. Once you know this, you can prioritise the sub levers within monetisation like Free to Paid conversions, increasing CPM, redesigning pricing page, introducing differential pricing etc.

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Presenting your growth model

Presenting the growth model to your organisation requires a clear and concise structure. This enhances your credibility with stakeholders and makes them more likely to trust you. Further, it helps align them to the key solutions proposed by your model. To nail this, we will be using McKinsey’s Pyramid Principle.

The idea is -
Start with the main conclusion.
Mention each supporting key point.
Back every point with a detailed evidence.

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Step 1 : Begin with the conclusion. Start with the main objective which explains the primary goal of your growth model. Here's an example -

"Our revenue goal is X. Our current ARPU is Y. We need to increase ARPU to achieve 30% of our revenue goal"

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Step 2 : Create a list of your supporting arguments for your proposed solution. Here are a couple of examples -

• Explain the current revenue from monetisation experiments & ARPU rates
• Define the target ARPU rates & the expected incremental revenue growth that it will bring
• Outline the methods to increase ARPU.
• • For example - increasing CPM ( in the context of AVOD), improving FTP (in the context of SVOD).

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Step 3 : Accompany your supporting facts with data. Go one level deeper to support your argument from step 2. Here are a couple of examples - ​

• Present the set of current data points like current user acquisition rate, retention rates, and engagement metrics.
• Explain how with the current and projected rates, you can increase CPM to bring about a change in ARPU and its impact on revenue. Make the use of tables and graphs to help them visualize this data.
• Next propose the key action items to increase CPM - redesigning pricing page, improving placement of ADs, and improving cohort based targeting.

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