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Driver-based modeling is an important skill for any FP&A team, and it’s foundational for effective scenario planning. Essentially it works based on the Pareto Principle, which states that 80% of outputs come from 20% of inputs.
A driver-based model links financial metrics like revenue to key business drivers that fit in the 20%, which could include things like sales volume, CAC, conversion rate, and more.
Traditional planning often uses top-down assumptions like “let’s grow revenue 5%.” Driver-based planning breaks down revenue into key drivers like number of sales reps, quota size, and attainment.
It saves you a significant amount of time, and it forces you to work in a way that’s tied to reality. As a very simple example, you could build a model that calculates revenue based on the formula:
Revenue = Number of reps × Quota × Attainment
Obviously, you could make this more detailed by factoring in other drivers like ramp time and attrition rate. Finding the right mix of drivers that you use to build your forecast takes time, and will depend on the specifics of your business.
Choosing the most relevant drivers
One of the methods you could use to determine which drivers are most impactful is sensitivity analysis.
Imagine you’re at a mid-sized SaaS company who wants to prioritize where to invest resources in the next quarter. You could run a sensitivity analysis on your revenue forecast to compare two drivers:
- Website traffic
More traffic leads to more sign-ups for the free trial, which in turn feeds the paid pipeline. - Churn rate
Retention directly impacts recurring revenue, and even a small increase in churn could wipe out growth from new customer acquisition.
First we define the base parameters for our analysis:
- Monthly website traffic: 100,000 visits
- Conversion rate to subscription: 2%
- Average subscription price: $100/month
- Churn rate: 5%
This yields about $200,000 in MRR.
If you increase web traffic by 10%, that translates to 110,000 visits and $220,000 in MRR (+10%).
But increasing churn by just 1% (from 5% → 6%) means your customer base shrinks, and revenue drops by $180,000 MRR (–10%).
Analysis of drivers like this can really help focus the business on the metrics that matter most to your bottom line.
The advantages of driver-based planning
Scenario analysis
Driver-based planning has a number of benefits. The first and most obvious is that when you build a model like this, it makes it very easy to create scenarios in which you can modify each driver to see the impact on revenue.
Business alignment
Because drivers are often operational (e.g., store openings, headcount, churn), they resonate with non-finance teams:
- Helps bridge finance with sales, HR, operations and others
- Creates a common language of drivers instead of debating line items
- Builds trust, since business partners see how their activities map into financial outcomes
Improved forecast accuracy
Because forecasts are tied to measurable drivers, they tend to be more realistic, less reliant on intuition or top-town targets. They’re also easier to adapt, since updates can be made quickly as drivers change.
Time savings
Driver-based forecasts require significantly less effort to build and maintain than manually updating line items in a larger model.
But despite the undeniable benefits, only 9% of organizations use fully driver-based models.
Implementing driver-based planning
Retiring the spreadsheets and moving to an EPM platform like Pigment is a prerequisite for becoming properly driver-based in your approach.
They offer:
A single source for data
Driver-based planning depends on linking operational drivers (like headcount, sales volume, churn rate) to financial outcomes. In spreadsheets, this often requires manual data pulls and fragile formulas. A modern FP&A platform connects directly to ERP, CRM, HRIS, and other systems
Scalability and flexibility
Adding a new driver or business unit in a spreadsheet can quickly become messy. In modern FP&A tools:
- Drivers can be modeled once and reused across scenarios
- Hierarchies and dimensions (e.g., region, product, cost center) are built in, making it easy to slice and dice
- Scenario planning can be run instantly by adjusting drivers without breaking models
Simple collaboration
One of the main benefits of driver-based planning is that it involves all areas of the business.
A platform like Pigment is built with role-based access in mind: so sales, HR, or operations can input their own drivers without breaking your models, and maintaining clear version control.
Try it today
To see how you can make driver-based planning the foundation of your organization, book a demo of Pigment.
