Finance

Utilizing Models to Increase Revenue & Business Efficiency

The benefits of a solid modeling process

65%of people are visual learners, so it’s no surprise that company’s use models to explain and analyze their metrics. The perks of utilizing models go far beyond creating exciting presentations.

Here’s how to use models to benefit your team and your company’s bottom line.

Maximize return on investment

A business can increase revenue by utilizing forecast models to get the best return on investment possible.

While return on investment usually refers to stocks, a company can also use it for marketing. A company may spend money on a marketing campaign in hopes of acquiring new customers and generating revenue. The best outcome would be if each dollar spent eventually generated the maximum return possible. This doesn’t mean a company should spend endless amounts of capital on marketing.

If you fell asleep in your econ class (no judgment, we won’t tell,) the law of diminishing returns states that you will receive less reward per output after a certain point. (model law of diminishing returns) This law suggests that there's a peak where you can receive the highest return. Efficient marketing campaigns will come as close to this point as possible.

For example, let’s say a company is considering two ad campaigns. The first spend of $10,000 is forecasted to generate $50,000 in revenue. The second campaign spends $20,000 and is forecasted to generate $70,000. The ROI for the first campaign is 400%. The ROI for the second is 250%. The first campaign has the better ROI.

Instead of calculating the potential ROI for each business expenditure, Causal’s customizable templates allow you to forecast the potential return on investment. Forecast models help your company maximize revenue and lower costs.

Keep your team on the same page

Metrics such as churn rate, monthly recurring revenue, and customer acquisition costs point a business toward potential issues.

Churn rate is the percentage of customers who cancel a subscription. A high churn rate can signify a range of issues, from customer service problems to poor user experience. No matter what the cause, the whole team should be aware of high churn. Low monthly recurring revenue could suggest that a marketing team cut costs or that the product should be priced differently. High customer acquisition costs can be lowered by a shift in a marketing team's strategy. All of these red flags will be missed if a company’s team doesn’t know or understand these key metrics.

The numbers alone paint far less of a picture than models. For example, hearing that your company has a 10% Month of Month grow rate for revenue may not mean much while seeing a  model of the metrics is far more clear.

Having your team on the same page allows new talent to thrive and take a more significant role in accomplishing your company's goals. Like a game of chess, purely knowing the right moves means little if you don’t understand the overall strategy.

Ensuring your team is on the same page also prevents avoidable mistakes that can waste both time and money and mitigates risk. For example, a marketing team that does not know their target market could spend unnecessary funds on a campaign that won’t lead to new customers. Metrics aren’t stagnant, making models especially important. A team's target market in year one may not be their target market in year two.

The best models are live, meaning they update for everyone anytime someone makes a change. This way, thousands of emails aren’t a necessity. Emails can get lost, and if this happens, a whole team can potentially be basing their decisions on old metrics to potentially detrimental consequences.

Causal’s live data integration system and clear models keep your team up to date so that everyone can work toward your company’s collective goals.

Attract investors

Metrics and models are a key part of business-investor relations. Models provide the information needed for investors to judge the health and possibilities of your company. Clear models with promising forecasts will help excite your investors while providing both the business and investor a clear picture of where the company is heading.

Not all models are equal. Financial models can fall into several traps. They can be:

  • inaccurate due to complicated formulas
  • unclear
  • older versions that don’t rely on the newest data
  • visually unappealing

Causal’s models use fewer formulas to decrease the chance for inaccuracy.

Forecast models to make business decisions

Forecasts can be used to plan for and predict costs, revenue, churn, and other metrics that affect a business.

The best forecasts give a range of possible scenarios, so your company can prepare for any and all outcomes. Causal’s forecasts understand the uncertainty and natural fluctuation of business. Not only does Causal provide a range of outcomes, but our templates are adjustable, so you can make the most profitable business decision.

Let’s say. Company X is thinking of hiring more employees. At first, they’ll be increasing their expenses and perhaps even decreasing productivity due to the resources needed to train these employees. However, this expansion will allow the company to take on more clients in the future and generate additional revenue.

Whether this decision is beneficial or detrimental depends on a company’s forecast. If company X’s churn rate is expected to increase, and they aren’t receiving many new customers per month, hiring more employees could be an unnecessary drain on finances. If company X’s Lead velocity rate, which shows the growth of qualified leads month to month, is increasing, this company might decide hiring is the right decision. More employees will accommodate for this increased growth.

Use Causals’ models to make profitable and efficient decisions.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Get started today with Causal

Sign up and get started for free, or book a demo to learn how Causal can transform your finance function.