The Databook Business Case Tool helps you assess the value to the customer of the solution(s) you are selling.
For non-Financial Services companies, we display the value that your solution(s) could create across five financial metrics for your customer:
- Profit (EBIT)
- Profitability (EBIT margin)
- Cost of Goods Sold (COGS)
- Sales, General and Administrative Costs (SG&A)
For Financial Services companies we display the value impact across four metrics:
- Total Revenue
- Profit (EBT excluding exceptions)
- Profitability (EBT excluding exceptions margin)
- Operating Expenses (either Total Non-Interest Expenses or Total Operating Expenses depending on how the company reports its costs)
The value impact for each metric is calculated using the value-impact percentages you input in business case tool.
We apply these inputs to equity analyst forecasts of the company's financial performance over the next two or three fiscal years (depending on what data is available for each company).
Note on forecast data
The value impacts for Revenue, EBIT, COGS and SG&A are shown in the business case tool relative to analyst forecasts for these metrics, not to historical data.
We have chosen to show the value impacts in this way, so sellers can demonstrate how their solution can move the dial for a customer's financial performance, beyond any growth or cost efficiencies that analysts have already factored in for the company.
We use company financial data and analyst consensus forecasts supplied S&P Capital IQ as inputs for the business case tool.
Note on COGS value impact
Analysts supply Revenue and EBIT forecasts and we derive a COGS forecast from analyst forecasts of gross margin.
Note on SG&A value impact
We calculate forecast SG&A using the forecasts for Revenue, EBIT and COGS. To do this, we need to make an assumption that any Other Items in the company's finances (i.e. anything not covered by Revenue, EBIT, COGS or SG&A) remain a fixed proportion of the company's revenue over the next three years. To calculate the proportion of revenue accounted for by Other Items we use data from the last 12 months as a baseline.
Note on Operating Expenses value impact
We calculate forecast Operating Expenses using the forecasts for Total Revenue and EBT excluding exceptions. To do this, we need to make an assumption that any Other Items in the company's finances (i.e. anything not covered by Total Revenue, EBT excluding exceptions or Operating Expenses) remain a fixed proportion of the company's total revenue over the next three years. To calculate the proportion of total revenue accounted for by Other Items we use data from the last 12 months as a baseline.
Note on profitability (EBIT margin) value impact
Profitability impact is calculated as the percentage-point difference between forecast profitability margin after value impact and the original forecast profitability margin.
The profitability value impact is calculated as the impact on EBIT margin at company group level, irrespective of the value you add in the 'Proportion of business impacted' field.
Accuracy of business case tool output
We think that the model underpinning the Business Case Tool is robust and should provide high-quality outputs if realistic inputs are chosen by the user. However it does rely on a number of assumptions, so is designed to provide information only and not recommendations for particular courses of action.
The Business Case Tool relies in part on analyst forecasts to estimate value impacts. Please bear in mind that analyst estimates and historical financial data may be based on different approaches to recognizing revenue, profit and costs, and may not be directly comparable, which can affect the output of the Business Case Tool.
The Business Case Tool is designed to be used early in the sales cycle, when the seller is relying on outside-in perspective on the customer. Later in the sales cycle, it should be possible to work with the customer to adjust the inputs and assumptions to refine the business case.