STEP 2: Introduction to Building Your Model

1. Value Drivers

Before you construct a model to quantify your solution or product’s ROI, you must determine the key drivers that propel the supposed returns. That way, you can build out a mathematical model to describe how the different drivers contribute to the total benefit to the customer. If you already have a model, you can skip to this section to continue our tutorial. 

When thinking about your value drivers, think about why the customer should buy your product, financially speaking. What’s the total benefit for them? If it helps, value drivers generally fall into four distinct categories:

1. Hard cost savings 
2. Productivity gains
3. Incremental revenue

4. Soft Cost savings (risk reduction, turnover, etc.)

   
   

Hard Cost Savings

These are savings that are virtually guaranteed to the company you’re attempting to sell to - money back in their pockets. Things like paper costs that get saved going digital, or a reduction in server fees that your platform offers, etc. This is one of the strongest types of ROI, because of its credibility. 

Productivity Gains

These are drivers that come from a promised increase in productivity. For example, needing one less employee to complete a 3-hour daily task at $15/hr generates $45 of ROI daily. The client doesn’t get that money back immediately but rather would get to reallocate that employee’s time more efficiently, which is valued at their hourly rate. 

Incremental Revenue

These are drivers that come from a promised increase in revenue. For example, increased customer retention directly increases the client’s revenue next year. These are based on assumptions about your solution’s impact, which can hopefully be justified, as it creates a very compelling case to purchase your product.

Soft Cost Savings

These are savings that aren’t easily connected to a hard dollar value - you’ll have to make that connection to convey the value of this driver. One example is turnover - every employer knows that turnover is costly, but if you can find research on, for instance, the average cost of a one percentage point increase in nurse turnover, then you can quantify your savings in turnover reduction. It’s a little harder to sell, but with the right research can be a very strong case for your solution. 

2. Model Considerations using Reference 

Introduction

All of the content in the following sections explains how to create and update a Visualizer in our system.  The guides refer to a dummy model that we’ve created for training purposes, Lemonade Stand ROI. This model is relatively simple but contains enough complexity for us to explain our system. We’ll go through all the features in this model, so you know what to keep in mind when building your own. Here’s a link to the model: Lemonade Stand ROI.

Context

The model is from the perspective of a company that operates a Lemonade Stand. Given its current state, i.e. how much lemonade is sold daily and the costs of lemons, the model forecasts benefits from a potential membership with a lemon supplier. There are two tables in this model. The table on the left shows the “before”, the “change” from membership, and the calculated “after” for a series of line items that end up conveying value. The table on the right represents the User Interface mockup of how this model is to be displayed, explained further in this section. Realistically, the lemon supplier’s sales team would use this model to convey the value of a membership to any lemonade stand, inputting their company-specific values to yield the outputted benefits. 

Revenue Drivers

The membership provides 2 things: 1st: referrals, 2nd: cheaper lemons. The corresponding revenue drivers are Client Acquisition and Supply Cost Savings. Client Acquisition explains the benefits of an increase in lemonade sold daily due to referrals from the membership. The model allows you to choose the assumed increase between a Conservative Estimate of 5% and a Liberal Estimate of 10%. The ROI for this driver is Incremental Revenue. The Supply Cost Savings driver explains the benefits of the decreased cost of lemons, which is a Hard Cost Saving. 

Table Structure

How you want to structure the line items in your tables to show the link from assumptions to benefits is up to you, generally speaking, you should “show all your work’, meaning don’t skip interim steps and have a large complicated calculation. For example, the reference model could’ve skipped over the daily and monthly benefit rows and jumped straight to annual, but showing those steps allows a salesperson to easily explain and a potential client to easily understand where these numbers come from. 

Complexity

It is worth noting that these revenue drivers can be broken down further for more complex clients/convincing ROI. For example, instead of multiplying the monthly benefit by 12 to get the annual benefit, we could add an input for “number of months of operation in a year” since lemonade stands are largely seasonal, and use that number to calculate the annual benefit, but we chose to keep it simple and just add a tooltip for educational purposes. The ValueCore best practice is that every numerical value in a calculation should be an input to maximize flexibility, it is much easier to change things down the road if you follow this best practice now. Additionally, if your model is too complex, you might want to consider splitting it into different tabs, with inputs in one and outputs in another, and potentially a summary as a third. 

Tooltips

Notice the last column on the UI mockup table (to the right). This is for tooltips, which are useful bits of information justifying a number or assumption, like a source or explanation. These appear as hover-over text boxes in the UI.  In our case, if a company was promising a 5% or 10% increase in customers, they would typically have a tooltip along the lines of “Average Customer Increase from previous members is 10%” to justify that assumption. Another example is the “3-Year projected membership benefit” - As you can see in the sheet, there’s a tooltip explaining that the value was calculated assuming no growth over the 3 years - which means if the company expects to grow, the benefits can only be better! ROI can be complicated sometimes, so it’s helpful to have explanations for some of your assumptions. 

3. Getting Started

Now that we’ve explained the general features of an Excel model, you can get started building your own! You don’t need to worry about the UI mockup for now, that is explained in this section. However, keep in mind that this will ultimately be configured and uploaded into our system. That means everything you include in your model must be one of six things:

• Labels
• Tooltips
• Input Variables
• Output Variables
• Enumerated Variables
• Graphs

Labels

Labels are the names of the different variables in your model, like “Price of Lemonade”, or the titles of tables like “Impact Summary”. Tooltips were explained above. Graphs are simply visual representations of your data. 

The other three model features are the three types of variables that you can build into your model and import into our system (Inputs, Outputs, and Enumerated Variables). 

Input Variables

Inputs are non-calculated values of your model that can be used in the calculations for your outputs, or just used to collect data to help your pitch. Inputs can be numeric or strings, including constants you use in calculations, data from clients (both qualitative and quantitative), etc. When using strings, there should be no spaces between characters. The ValueCore best practice is to never use constants in your equations - every constant should be an independent input variable so that the model is more flexible down the road.

Some examples of input variables are:

• Number of employees at a company
• Number of hours in a workweek
• Goals for 2020
• Price of Lemonade

Output Variables

Outputs are the calculated aspects of your model. They are dynamic - the result of the calculation will change based on the inputted values, whereas other input variables will not as they are static. Outputs are calculated from input variables or other output variables. For example, in our model, the “Daily Costs” variable is an outputted calculation based on inputs (cost of lemons, lemonades sold daily, etc.), but it is also used in the equation to calculate the “Monthly Costs”. 

Some examples of output variables are:

• Annual Savings
• 3-Year Projected Benefit
• ROI

Enumerated Variables

An Enumerated variable is a selection of options, that can be numbers or strings. For instance, the Lemonade Stand Model has an input called “Projection Type” that allows you to select between Conservative and Liberal Estimates. If you desire, you can create logic using if statements in your model to change certain numbers based on this selection. In our dummy model, the Conservative estimate will change the increase in “Quantity Sold Daily” to 5%, and the Liberal estimate will change it to 10%. This allows you to change your model’s functionality based on a picklist of options. 

Note: Enumerated variables do NOT have to affect the model. They can simply just be data-collection tools for sales representatives as they walk potential clients through the Visualizer. 

Some examples of Enumerated Variables are:

• Rate your compliance risk from 1-5
• Conservative vs. Liberal Estimates
• Which package should the ROI be calculated for

3. Customer Relationship Management Integration

ValueCore is bi-directionally compatible with SalesForce, allowing you to have an interconnected sales cycle. When building your model, there are 3 CRM considerations to keep in the back of your mind:

1. Access to the ValueCore platform

   If you choose, you can create a button in SalesForce that directly links to your Visualizer, making it easier for sales representatives to drive active use and close business leads faster.

   
   

2. SalesForce Data import into ValueCore

   ValueCore's compatibility allows you to pre-populate Visualizer variables with already captured SalesForce Data. This minimizes any rework needed to synchronize your sales process. It’s up to you to decide which SalesForce data points make sense to integrate. At a minimum, you should pass in the client name, contact info, etc. but data on variables like Annual Contract Revenue, Number of employees, etc. are also valuable. etc. also write that over).  

   
   

3. ValueCore import into SalesForce

   ValueCore is bi-directionally compatible with SalesForce, meaning if you discover / your client fills out new data in the Visualizer, you can import that data back into SalesForce to optimize your sales process. This can also be done with outputted benefits (e.g. $50k cost savings, $200k productivity gains, $100k incremental rev, etc.) to enable opportunity scoring, improve the forecast for close rates/timing, etc. This is used increasingly over time as ValueCore is adapted into your sales process - the value your solution/product is going to deliver to customers will be highly predictive of close rates/deal sizes etc...., allowing a more data-driven approach.