There is clarity and power in expressing business models via metric trees. Take this example of a profit tree for a hypothetical meal-kit company - let’s call it “Trace Nutrition Shop”.
Trace Nutrition Shop acquires users who continue to consume and pay for nutritious deliveries over time. However, the company incurs significant costs in processing the delivery across operations, customer service, and logistics.
The tree has two sides: demand/revenue and supply/cost, both anchored around the key delivery entity. In total, there are 33 metric nodes in this tree that lead up to the three key output metrics: total revenue, total costs, and profit $.
🤩 🤯 This drives clarity - it is clear what the input metric levers are that ladder to the output metrics.
- The revenue tree on the left represents the growth process. The growth of new customers is separated from the repeating behavior of existing customers, as these represent different processes.
- There is an additional breakdown of existing customers into those who consume prior products and those who consume new products, as the organization is experimenting with expansion revenue as a growth lever.
- This tree makes the levers of control for marketing and product explicit.
- Similarly, the cost tree on the right side highlights the adjustments that can be made. To reduce costs, you must either reduce the number of tasks involved or improve the efficiency of each task.
💪🏽 💥 This represents a powerful way to operate a business. Specifically:
- The entire tree can be backed up by real data.
- Each metric in the tree can be mapped to sub-segments of interest for drill-down operations.
- A tool can continuously traverse this tree, performing automatic analysis calculations for business and product reviews, as well as planning exercises.
- Or, even extract summaries and distribute personalized presentations to relevant audiences.
Metric trees are a promising abstraction for both streamlining ad-hoc workflows and organizational alignment.