What are business drivers?
A business driver is a core activity that boosts revenue and operations. CIO Wiki defines one as “a resource, process or condition vital for the continued success and growth of a business.” These functions or actions don’t rely on other activities to achieve results.
Business drivers are actionable, measurable activities. Measuring business drivers and metrics reveals information critical for making better business decisions.
What is driver-based planning?
You want to include the factors that drive success into your planning process.
Driver-based planning uses these factors to perform financial modeling. By scenario planning with your strongest business drivers, you can understand the impact of different strategies. Driver-based planning makes you more nimble: now you can react to shifts in the market.
- Driver-based planning is a preferred method of modeling long-term strategy. A driver-based model allows FP&A teams to look at scenarios while keeping factors like cash flow, revenues, and production costs in mind.
- Using a driver-based forecast allows Finance to focus on the most impactful aspects of the budget. A driver-based rolling forecast gives you data to adjust assumptions and scenarios with agility.
As an example, let’s say that field salespeople are a known, critical revenue driver for your business. Finance can estimate costs (travel, communication tech, trade show budgets, and marketing spend) from the number of salespeople needed to meet quarterly or annual goals.
How to determine your business drivers
Because every business operates uniquely, the prime movers for revenue and cost will vary. There are many factors at play, but some of the most prominent are:
- Company longevity
- Business model
- Company size
- Geographic or virtual location
- Market competition
- Tech stack maturity
The benefits of driver-based planning lie partly in its flexibility. It allows you to plan, budget, and analyze actuals based on your company’s unique business value drivers and circumstances.
To identify your critical business drivers for use in a driver-based model, look at your financial reports (the 3-statement model). Investigate with a root cause analysis.
For each line item in the financials, ask yourself: What’s behind this number? Drill down until you reach a logical termination point.
What drives revenue numbers in your business?
Say you have a consultancy. Discovery calls are the primary source of warm leads and closed-won business.
- What is your average close rate (as a percentage)?
- What is your average deal size for a closed-won?
- How many discovery calls are needed to generate that close rate?
- How many discovery calls can your average salesperson conduct per day/month/quarter?
In this case, your number of salespeople might be a key driver for your business. Increasing high-performing sales team members will increase your close-won rate and revenue. So to drive growth, your business may focus on building a high-quality sales team.
Identifying and tracking these critical factors will give you an accurate pulse on your business and how to drive growth.
15 key business drivers to consider
By establishing at least five business drivers, you’ll know what to track and how to track and report on changes. For some inspiration, here are fifteen of the top business drivers companies track and manage to forecast the road ahead.
- Financial performance: Financials drive investments, which drive growth and revenue. Historically solid financial performance is sometimes the best driver of future performance.
- Funding: With strong financial statements and reporting, investors feel confident about funding. Growth equity and venture capital greatly impact planning and reaching goals.
- Talent pool: Having the right people and skills in your company boosts the odds of successful projects and continued growth. Talented teams (production, engineering, marketing, customer service, and executives) with vision and cooperation often serve as the foundation for success.
- Capital access: Access to capital funds investments in technology, production, and hiring.
- Salespeople: When you have a great product or service, your sales team often leads the way in delivering it to customers. A sufficient sales force with the right skills and training is essential for maintaining a buyer pipeline.
- Cost efficiency: When it comes to growth potential, it’s not what you make but what you save while making it. Cost efficiency can be a major driver in retaining profit and stabilizing operations. For SaaS companies, this might be your magic number.
- Profit margin: With better cost efficiency and strategic spending, companies enjoy a wider margin on sales. You can reinvest that extra capital for continued growth or preserve it for handling future downturns and challenges.
- Production cycle: Time is money, and less time in production means a faster sales cycle. Production times serve as a vital metric for operational performance.
- Potential market size: Growth requires access to a strong pipeline of new customers. Where there’s room to expand market share, the conditions become ripe for growth.
- Customer loyalty: Loyalty is tied to customer lifetime value (LTV), which drives healthy recurring revenue.
- Employee turnover: Growth relies on knowledge. Low turnover reduces employment and training costs (saving money). It also keeps high-performing employees in the company.
- Assets: Your portfolio of assets allows you to produce and develop products. It’s also a valuable tool for accessing liquid cash if needs arise. This flexibility allows the company to adapt to market changes and drives growth during uncertain times.
- Debt: Well-managed debt can be a driver when it funds revenue-generating services, products, and materials. Debt management can help your available cash go further and work more efficiently.
- Technology: As digital transformation grows, a mature tech stack can serve as a key business driver, enabling companies to do more with less, drive growth, and stabilize cash flow.
- Inventory: Maintaining inventory levels ensures steady customer sales while limiting over-investment and warehousing. Effective resource planning can be a driver of predictable revenue and cost reduction.
Conclusion: how technology improves tracking for business drivers
Business drivers are always trackable and manageable. Thus, data for these drivers is the foundation for planning and budgeting. Technology brings your data into one place and empowers in-depth analysis and reporting.
Software tools can help automate tracking for driver-based performance management. It gives you real-time insight into changes that impact revenue. You can see what’s going on under the hood, fine-tune forecasts, and better react to change.
Using technology to power your driver-based planning means you can grow faster and with fewer complications.
Want to employ a driver-based forecast in Excel? It’s possible with Cube, the first Excel-native FP&A tool built by people who love spreadsheets as much as you do!