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Table of Contents

  • The Integrated Financial Model
      • An Integrated Financial Model (IFM) captures a business’ streams of information to collate data for tracking visibility.
      • The Instrumentation Pyramid
      • The Integrated Financial Model

The Integrated Financial Model

An Integrated Financial Model (IFM) captures a business’ streams of information to collate data for tracking visibility.

it’s the starting point for aligning the day-to-day activities of a company with its long-term goals. The IFM works by collecting data from all the systems used to run one’s business. Trends are then are evaluated to make predictions which are then discussed with the team involved and aligned with the business’ goals. When fully implemented, an IFM can accurately report on every relevant metric every week.

In our experience, use the Integrated Financial Model and our conversations to make charts and tell stories about the progress and value of your business. We’ve been applying this methodology across hundreds of businesses since 2001, working with some great people working on great ideas.

The Integrated Financial Model Dashboard - A computer screen of the view of financial information for a business owner

The Instrumentation Pyramid

Level 1 – The Vital Signs

Vital Signs are the minima required set of metrics to accurately predict the business. In a direct-to-consumer business that we studied at Assembled Brands the Level 1 metrics were ad spend, web traffic, conversion rate, average order, repeat purchase rate product margin, gross margin. From these metrics, we can calculate the LTV:CAC ratio.

Level 2 – The Metrics
  • break the web traffic metric from Level 1 into sources of web traffic
  • break the gross margin down into margin by product
  • break the LTV into cohorts
Level 3 – The real-time transaction metrics of your business.

The fractal: Each department, each customer, each employee may also have 3 levels of metrics.

The Integrated Financial Model as represented by system lines and blue connections

The Integrated Financial Model

February 16, 2022
An Integrated Financial Model (IFM) captures a business' streams of information to collate data for tracking visibility.
https://www.brightzen.com/wp-content/uploads/2022/01/iStock-1183368239.jpg 1299 2309 Amanda Rogers https://www.brightzen.com/wp-content/uploads/2022/03/BrightZen-fixed-last-time-1030x257.png Amanda Rogers2022-02-16 14:07:102023-02-16 10:07:01The Integrated Financial Model

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  • The Integrated Financial Model as represented by system lines and blue connectionsThe Integrated Financial ModelFebruary 16, 2022 - 2:07 pm

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LTV:CAC
Lifetime Value:: Customer Acquisition Cost

The most important component of a Financeable Equation is the ratio between customer acquisition cost (CAC) and Lifetime Value (LTV).

Revenue streams (and therefore businesses) increase in value with:

  • Higher LTV:CAC ratio
  • Faster time to payback
  • Higher rate of customer acquisition

There are not any standard definitions of what to include in CAC and how to calculate LTV so naturally, entrepreneurs take wide latitude in how they present this ratio to position their company in the best light. (See the Magic Cohort.)
It’s is this ambiguity that caused me to rename LTV to LTGP or Lifetime Gross Profit at Assembled Brands Capital.

Lifetime Revenue = Average Order Value / (1- Repeat Customer Purchase Rate)

Repeat customer order rate = This month’s orders from repeat customers / last months total orders

Lifetime Gross Profit = Lifetime Revenue * Gross Margin

The gross margin should be the “realized gross margin”. Realized Gross Margin is calculated when the Cost of Goods Sold includes:

  • Fully landed product costs
  • Fulfillment expenses
  • Merchant account processing costs
  • Cost of inventory shrinkage
  • Return processing costs
  • Discounting
  • Sell through rate (in apparel and similar businesses)
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Table of Contents

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  • The Integrated Financial Model
      • An Integrated Financial Model (IFM) captures a business’ streams of information to collate data for tracking visibility.
      • The Instrumentation Pyramid
      • The Integrated Financial Model
→ Index