This is the time of year where 2018 targets get set, and we all realize that we have another big mountain to climb next year. In 2018, marketers will be expected to bring in more customers, more trials or more orders, and more revenue. However, as we hurtle toward next year, teams often don’t spend enough time on what arguably can have the biggest impact on whether they make 2018 targets or not. Specifically, people don’t spend enough time building a robust model for how many customers they need at each stage of the funnel next year.
At a recent growth hacking conference in San Francisco, we asked how many people had dashboards that showed their viral coefficient and their viral cycle time. This was a conference of some of the top growth hackers in the world, and yet not a single hand went up. Yet, virality is one of just two main factors (churn being the other) that can have an exponential impact on the growth of internet companies.
The lack of focus on tracking virality showed a broader issue: as marketers, we often enjoy doing more than planning. We like finding growth hacks, running AB tests, and launching new campaigns. However, we don’t invest the time in building a top-notch funnel plan for the next year. We are talking about a plan that starts with the top level strategic goals and works backward into the marketing KPIs that need to be met. For example, we need to hit $X of online business next year, and to do that, we need X number of customers at each stage of the funnel.
Often, finance will help marketing pull together a basic model. However, marketing has to be heavily involved in the process, because finance cannot build a great model by themselves. A good model has the following traits:
- It captures all the core KPIs that the marketing team is going to focus on. It is easy to build a very macro-level model that just focuses on CAC (customer acquisition costs), but a good model will get into more detail and include the KPIs that marketing focuses on all the time, such as trial sign-up rate, activation rate, conversion to paid rate, ASP, etc. You want the marketing KPIs and the financial model to be in sync.
- The model should be deterministic. If you hit the marketing KPIs, the model should be solid enough that you will hit your financial targets. Some models have too many assumptions and plugs (i.e., things they don’t cover). As a result, they cloud the model and cause you to miss your financial targets even if you hit your KPIs.
- It calls out the most powerful variables. For example, as we discussed above, in many Internet businesses, churn and virality have an exponential effect on the business. While these are more complex to measure and harder to impact, they are the most important. They need to be front and center in the model. If there are any other big assumptions (e.g., we are going to triple ASP next year), they, too, should be very visible in the model.
- The model should have wide buy-in from the rank-and-file marketing folks who will be doing their best to hit the KPIs. In addition, you need agreement from everyone from finance to product to other teams that will be needed in the drive to hit the numbers.
- The model will not be so complex that no one understands it. It is always a tricky balancing act to make the model complete enough that it captures all the core KPIs while not making it so complicated that no one can understand it. You just need to see what works for your organization.
- The KPIs are easily measured. If the model has X core KPIs, they need to be things that you can easily monitor. Can you send everyone on the team a dashboard every day showing how they are doing hitting those numbers?
As you can see, a great model meshes financial performance with marketing KPIs. This focuses the team on the things that will have the biggest impact next year, and shows them what numbers to be watching. Without that type of model, it is far too easy to get caught up running the sexy experiments instead of the ones that really move the needle toward the top corporate goals.
Once you have a great model for 2018, you are off to the races in hitting your targets for next year.