{"number":"12","slug":"financial-impact-models","filename":"12-financial-impact-models.md","title":"Financial Impact Models","bytes":12216,"lines":348,"sha256":"776f8b0859c3697b297c4309df66fc306398e0fea42bc48ea2ef669e6952fcb9","sections":27,"tables":2,"code_blocks":23,"href":"/v1/docs/financial-impact-models","outline":[{"anchor":"1-core-rule","level":2,"title":"1. Core rule","line":3,"tables":[],"code":[]},{"anchor":"2-input-labels","level":2,"title":"2. Input labels","line":7,"tables":["12.2-input-labels.t1"],"code":[]},{"anchor":"3-scenario-convention","level":2,"title":"3. Scenario convention","line":19,"tables":[],"code":["12.3-scenario-convention.c1"]},{"anchor":"4-conversion-gap-contribution","level":2,"title":"4. Conversion-gap contribution","line":38,"tables":[],"code":["12.4-conversion-gap-contribution.c1"]},{"anchor":"5-lead-form-friction","level":2,"title":"5. Lead-form friction","line":53,"tables":[],"code":["12.5-lead-form-friction.c1"]},{"anchor":"6-paid-media-waste","level":2,"title":"6. Paid-media waste","line":67,"tables":[],"code":["12.6-paid-media-waste.c1"]},{"anchor":"7-organic-demand-gap","level":2,"title":"7. Organic demand gap","line":85,"tables":[],"code":["12.7-organic-demand-gap.c1"]},{"anchor":"8-churn-reduction","level":2,"title":"8. Churn reduction","line":100,"tables":[],"code":["12.8-churn-reduction.c1"]},{"anchor":"9-activation-onboarding-improvement","level":2,"title":"9. Activation/onboarding improvement","line":113,"tables":[],"code":["12.9-activation-onboarding-improvement.c1"]},{"anchor":"9a-cac-contribution-ltv-ltv-cac-and-payback","level":2,"title":"9A. CAC, contribution LTV, LTV/CAC, and payback","line":126,"tables":[],"code":["12.9a-cac-contribution-ltv-ltv-cac-and-payback.c1","12.9a-cac-contribution-ltv-ltv-cac-and-payback.c2"]},{"anchor":"10-workflow-automation-and-capacity","level":2,"title":"10. Workflow automation and capacity","line":154,"tables":[],"code":["12.10-workflow-automation-and-capacity.c1"]},{"anchor":"11-support-service-cost","level":2,"title":"11. Support/service cost","line":172,"tables":[],"code":["12.11-support-service-cost.c1"]},{"anchor":"12-error-and-rework","level":2,"title":"12. Error and rework","line":184,"tables":[],"code":["12.12-error-and-rework.c1"]},{"anchor":"13-pricing-power-scenario","level":2,"title":"13. Pricing-power scenario","line":193,"tables":[],"code":["12.13-pricing-power-scenario.c1","12.13-pricing-power-scenario.c2"]},{"anchor":"14-upsell-cross-sell","level":2,"title":"14. Upsell/cross-sell","line":212,"tables":[],"code":["12.14-upsell-cross-sell.c1"]},{"anchor":"15-vendor-supply-concentration","level":2,"title":"15. Vendor/supply concentration","line":223,"tables":[],"code":["12.15-vendor-supply-concentration.c1"]},{"anchor":"16-performance-availability","level":2,"title":"16. Performance/availability","line":236,"tables":[],"code":["12.16-performance-availability.c1"]},{"anchor":"17-reputation-narrative-scenario","level":2,"title":"17. Reputation/narrative scenario","line":246,"tables":[],"code":["12.17-reputation-narrative-scenario.c1"]},{"anchor":"18-pr-share-of-voice-opportunity","level":2,"title":"18. PR share-of-voice opportunity","line":261,"tables":[],"code":["12.18-pr-share-of-voice-opportunity.c1"]},{"anchor":"19-security-and-compliance-risk","level":2,"title":"19. Security and compliance risk","line":270,"tables":[],"code":["12.19-security-and-compliance-risk.c1"]},{"anchor":"20-cost-of-inaction","level":2,"title":"20. Cost of inaction","line":281,"tables":[],"code":["12.20-cost-of-inaction.c1"]},{"anchor":"21-roi-npv-and-payback","level":2,"title":"21. ROI, NPV, and payback","line":293,"tables":[],"code":["12.21-roi-npv-and-payback.c1"]},{"anchor":"22-break-even","level":2,"title":"22. Break-even","line":305,"tables":[],"code":["12.22-break-even.c1"]},{"anchor":"23-double-counting-map","level":2,"title":"23. Double-counting map","line":316,"tables":[],"code":[]},{"anchor":"24-financial-impact-matrix","level":2,"title":"24. Financial impact matrix","line":328,"tables":["12.24-financial-impact-matrix.t1"],"code":[]},{"anchor":"25-model-review-checklist","level":2,"title":"25. Model review checklist","line":334,"tables":[],"code":[]}],"blocks":[{"type":"heading","level":1,"text":"Financial Impact Models","anchor":"financial-impact-models","line":1},{"type":"heading","level":2,"text":"1. Core rule","anchor":"1-core-rule","line":3},{"type":"paragraph","text":"A visible gap is not automatically a financial loss. Build a mechanism from a measurable unit to contribution margin, cash, capacity, or risk. Use target-reported or authorized measured inputs where possible. Otherwise show low/base/high scenarios and the missing inputs.","line":5},{"type":"heading","level":2,"text":"2. Input labels","anchor":"2-input-labels","line":7},{"type":"table","headers":["Tag","Source"],"align":["left","left"],"rows":[["R","reported by the target, filing, or regulator"],["M","measured from authorized internal/first-party data"],["B","external benchmark with comparable context"],["A","explicit analyst assumption"],["C","calculated from tagged inputs"]],"line":9,"id":"12.2-input-labels.t1"},{"type":"paragraph","text":"Example: `Monthly visits = 80,000 [B/A]`, not `Monthly visits = 80,000`.","line":17},{"type":"heading","level":2,"text":"3. Scenario convention","anchor":"3-scenario-convention","line":19},{"type":"code","lang":"yaml","content":"currency: CAD\nperiod: annual\nmodel_class: M0|M1|M2|M3|M4|M5\nresult_class: REPORTED_OR_MEASURED|DETERMINISTIC_CALCULATION|ESTIMATE|SCENARIO\nlow: {}\nbase: {}\nhigh: {}\nattribution_factor: [0, 1]\nrealization_factor: [0, 1]\nconfidence_band: low|moderate|high|very-high\nexcluded_effects: []\noverlap_group: \"\"","line":21,"id":"12.3-scenario-convention.c1"},{"type":"paragraph","text":"Model classes M0–M5 are defined in `11-scoring-prioritization.md`. The high case is plausible, not aspirational. Use sensitivity analysis on the two most uncertain inputs.","line":36},{"type":"heading","level":2,"text":"4. Conversion-gap contribution","anchor":"4-conversion-gap-contribution","line":38},{"type":"code","lang":"text","content":"Incremental customers = Eligible visits\n                      × (Proposed conversion − Baseline conversion)\n                      × Lead-to-customer rate\n\nAnnual contribution = Incremental customers\n                    × Contribution margin per new customer\n                    × Realization factor\n                    × Attribution factor","line":40,"id":"12.4-conversion-gap-contribution.c1"},{"type":"paragraph","text":"If conversion or traffic is unobserved, mark M1 scenario. Do not substitute a benchmark without showing it.","line":51},{"type":"heading","level":2,"text":"5. Lead-form friction","anchor":"5-lead-form-friction","line":53},{"type":"code","lang":"text","content":"Recovered qualified leads = Form starts\n                          × (Proposed completion − Baseline completion)\n                          × Qualification rate\n\nValue = Recovered qualified leads\n      × Close rate\n      × Contribution margin per customer","line":55,"id":"12.5-lead-form-friction.c1"},{"type":"paragraph","text":"Measure completion and lead quality together; shorter forms can increase low-quality volume.","line":65},{"type":"heading","level":2,"text":"6. Paid-media waste","anchor":"6-paid-media-waste","line":67},{"type":"code","lang":"text","content":"Addressable inefficient spend = Annual media spend\n                              × Inefficient-spend share\n                              × Addressable share\n\nCash-saving case = Budget actually removed\n                 − termination/transition cost\n                 − incremental measurement cost\n\nReinvestment case = Incremental conversions attributable to redeployment\n                  × contribution per conversion\n                  − incremental creative/operating cost","line":69,"id":"12.6-paid-media-waste.c1"},{"type":"paragraph","text":"Do not count reallocated media dollars as savings: the spend continues. Keep cash reduction and reinvestment contribution as mutually exclusive cases unless the budget is split explicitly. Public ad libraries show creative/activity signals, not spend efficiency for most advertisers. Without account data, output a diagnostic scenario, not “ad waste.”","line":83},{"type":"heading","level":2,"text":"7. Organic demand gap","anchor":"7-organic-demand-gap","line":85},{"type":"code","lang":"text","content":"Incremental qualified visits = Search demand\n                             × attainable CTR/share\n                             × content coverage\n                             × ramp factor\n\nContribution = Incremental qualified visits\n             × conversion rate\n             × contribution margin per conversion","line":87,"id":"12.7-organic-demand-gap.c1"},{"type":"paragraph","text":"Deduplicate branded and non-branded demand; model ranking probability and time-to-rank. Search volume estimates are vendor estimates, not census counts.","line":98},{"type":"heading","level":2,"text":"8. Churn reduction","anchor":"8-churn-reduction","line":100},{"type":"code","lang":"text","content":"Retained accounts = Active accounts\n                  × (Baseline churn − Proposed churn)\n\nRetained contribution = Retained accounts\n                      × Remaining-period contribution per account\n                      × Realization","line":102,"id":"12.8-churn-reduction.c1"},{"type":"paragraph","text":"Do not multiply by full customer LTV if another model already includes future-period retention; state gross vs net revenue retention.","line":111},{"type":"heading","level":2,"text":"9. Activation/onboarding improvement","anchor":"9-activation-onboarding-improvement","line":113},{"type":"code","lang":"text","content":"Additional activated customers = New customers\n                               × (Proposed activation − Baseline activation)\n\nValue = Additional activated customers\n      × Activation-to-retention lift\n      × Contribution margin over chosen horizon","line":115,"id":"12.9-activation-onboarding-improvement.c1"},{"type":"paragraph","text":"Cost savings from automation are modeled separately unless labor is truly removed or redeployed.","line":124},{"type":"heading","level":2,"text":"9A. CAC, contribution LTV, LTV/CAC, and payback","anchor":"9a-cac-contribution-ltv-ltv-cac-and-payback","line":126},{"type":"paragraph","text":"Use one acquisition cohort, attribution rule, currency, and observation window throughout.","line":128},{"type":"code","lang":"text","content":"CAC = Attributable acquisition cost for cohort\n    / Acquired customers in the same cohort\n\nContribution LTV = Σ expected cohort contribution_t / (1 + discount rate)^t\n\nLTV/CAC = Contribution LTV / CAC\n\nCAC payback period = first period where cumulative realized cohort contribution\n                     ≥ cohort acquisition cost","line":130,"id":"12.9a-cac-contribution-ltv-ltv-cac-and-payback.c1"},{"type":"paragraph","text":"State whether CAC is blended, channel-specific, new-logo, or marginal. Acquisition cost includes the defined media, sales, tooling, agency, incentive, and labor components consistently. Acquired customers—not leads or signups—must use the chosen cohort definition.","line":142},{"type":"paragraph","text":"Contribution LTV is net of cost to serve, fulfillment, support, refunds/credits, payment costs, and expected retention/churn over the chosen horizon. Do not mix revenue LTV with contribution CAC economics.","line":144},{"type":"paragraph","text":"The shortcut below is illustrative only when average revenue, contribution margin, and churn are approximately stationary and the timing convention is explicit:","line":146},{"type":"code","lang":"text","content":"Illustrative contribution LTV ≈ ARPA per period × contribution margin / churn per period","line":148,"id":"12.9a-cac-contribution-ltv-ltv-cac-and-payback.c2"},{"type":"paragraph","text":"Use survival/cohort curves for non-stationary retention, contractual terms, expansion, or censoring. Do not compare LTV from mature cohorts with CAC from a different period/channel. Show observation maturity, payback censoring, and sensitivity to retention.","line":152},{"type":"heading","level":2,"text":"10. Workflow automation and capacity","anchor":"10-workflow-automation-and-capacity","line":154},{"type":"code","lang":"text","content":"Gross hours released = Annual transaction volume\n                     × Minutes saved per transaction / 60\n                     × Adoption\n\nCapacity value = Gross hours released\n               × Loaded labor cost per hour\n               × Realizable/redeployable share\n\nNet annual value = Capacity value\n                 + Avoided error/rework contribution\n                 − Recurring software/operations cost","line":156,"id":"12.10-workflow-automation-and-capacity.c1"},{"type":"paragraph","text":"Do not call all time saved “cash savings.” Label it capacity unless staffing/vendor cost is actually avoided.","line":170},{"type":"heading","level":2,"text":"11. Support/service cost","anchor":"11-support-service-cost","line":172},{"type":"code","lang":"text","content":"Avoided contacts = Annual contacts\n                 × Deflection rate\n                 × Quality-adjustment factor\n\nCost value = Avoided contacts × Fully loaded cost per resolved contact","line":174,"id":"12.11-support-service-cost.c1"},{"type":"paragraph","text":"Guardrails: repeat contact rate, customer satisfaction, escalation, accessibility, and error severity.","line":182},{"type":"heading","level":2,"text":"12. Error and rework","anchor":"12-error-and-rework","line":184},{"type":"code","lang":"text","content":"Annual error cost = Unit volume × Error rate × Cost per error\nAvoided cost = Annual error cost × Preventable share × Realization","line":186,"id":"12.12-error-and-rework.c1"},{"type":"paragraph","text":"Cost per error can include labor, refunds, penalties, lost contribution, and recovery—but remove overlap.","line":191},{"type":"heading","level":2,"text":"13. Pricing-power scenario","anchor":"13-pricing-power-scenario","line":193},{"type":"code","lang":"text","content":"Incremental revenue = (Proposed price × Proposed units)\n                    − (Baseline price × Baseline units)\n\nIncremental contribution = Incremental revenue\n                         − change in total variable/service cost\n                         − transition/churn cost","line":195,"id":"12.13-pricing-power-scenario.c1"},{"type":"paragraph","text":"Elasticity relationship:","line":204},{"type":"code","lang":"text","content":"%ΔQuantity ≈ Elasticity × %ΔPrice","line":206,"id":"12.13-pricing-power-scenario.c2"},{"type":"paragraph","text":"Elasticity is segment- and context-specific. Public competitor prices do not reveal target elasticity. Recommend a controlled price/packaging test.","line":210},{"type":"heading","level":2,"text":"14. Upsell/cross-sell","anchor":"14-upsell-cross-sell","line":212},{"type":"code","lang":"text","content":"Incremental contribution = Eligible accounts\n                         × Incremental attach rate\n                         × Contribution per add-on\n                         × Realization","line":214,"id":"12.14-upsell-cross-sell.c1"},{"type":"paragraph","text":"Subtract cannibalization, discounting, sales effort, and added support burden.","line":221},{"type":"heading","level":2,"text":"15. Vendor/supply concentration","anchor":"15-vendor-supply-concentration","line":223},{"type":"code","lang":"text","content":"Expected annual loss = Probability of disruption\n                     × Duration\n                     × Contribution at risk per period\n                     × Unmitigated exposure\n\nMitigation value = Baseline expected loss − Post-control expected loss","line":225,"id":"12.15-vendor-supply-concentration.c1"},{"type":"paragraph","text":"Use scenario probabilities, not false frequencies, when data is sparse. Include dual-sourcing or redundancy cost.","line":234},{"type":"heading","level":2,"text":"16. Performance/availability","anchor":"16-performance-availability","line":236},{"type":"code","lang":"text","content":"Expected contribution loss = Affected sessions/transactions\n                           × Failure or abandonment delta\n                           × contribution per successful transaction","line":238,"id":"12.16-performance-availability.c1"},{"type":"paragraph","text":"Public performance tests are samples. Do not infer annual loss without representative traffic, conversion, geography, device, and incident duration.","line":244},{"type":"heading","level":2,"text":"17. Reputation/narrative scenario","anchor":"17-reputation-narrative-scenario","line":246},{"type":"paragraph","text":"There is no universal dollar conversion from sentiment or SOV.","line":248},{"type":"paragraph","text":"Use an exposure model only with an explicit causal path:","line":250},{"type":"code","lang":"text","content":"At-risk contribution = Exposed qualified demand/accounts\n                     × behavior-change scenario\n                     × contribution per unit\n                     × attribution","line":252,"id":"12.17-reputation-narrative-scenario.c1"},{"type":"paragraph","text":"Prefer a measurement plan: branded-search trend, direct traffic, win/loss reasons, cancellation themes, referral rate, share-of-search, survey trust, and response-time experiment.","line":259},{"type":"heading","level":2,"text":"18. PR share-of-voice opportunity","anchor":"18-pr-share-of-voice-opportunity","line":261},{"type":"code","lang":"text","content":"Comparison set = target + up to three selected comparators\nSOV = target qualifying mentions / all qualifying comparison-set mentions","line":263,"id":"12.18-pr-share-of-voice-opportunity.c1"},{"type":"paragraph","text":"SOV is an attention metric, not revenue. A commercial scenario additionally needs outlet relevance, audience overlap, message penetration, referral/brand-search lift, conversion, and margin.","line":268},{"type":"heading","level":2,"text":"19. Security and compliance risk","anchor":"19-security-and-compliance-risk","line":270},{"type":"paragraph","text":"Use expected-loss ranges only after authorization and appropriate expertise:","line":272},{"type":"code","lang":"text","content":"Expected annual loss = Event probability range × Impact range\nMitigation value = reduction in expected loss − control cost","line":274,"id":"12.19-security-and-compliance-risk.c1"},{"type":"paragraph","text":"Passive observations cannot reliably determine event probability. Public outreach should not quantify breach loss from an unverified fingerprint.","line":279},{"type":"heading","level":2,"text":"20. Cost of inaction","anchor":"20-cost-of-inaction","line":281},{"type":"code","lang":"text","content":"COI(t) = Lost contribution\n       + Incremental operating cost\n       + Expected risk cost\n       + Opportunity delay cost\n       − avoided intervention cost","line":283,"id":"12.20-cost-of-inaction.c1"},{"type":"paragraph","text":"Model delay over a declared period. Do not add overlapping conversion, acquisition, and revenue effects.","line":291},{"type":"heading","level":2,"text":"21. ROI, NPV, and payback","anchor":"21-roi-npv-and-payback","line":293},{"type":"code","lang":"text","content":"ROI = (Realized benefit − Total cost) / Total cost\n\nNPV = Σ from t=0 to T of CashFlow_t / (1 + discount rate)^t\n\nPayback month = first month cumulative net cash flow ≥ 0","line":295,"id":"12.21-roi-npv-and-payback.c1"},{"type":"paragraph","text":"State whether benefit is cash, contribution margin, capacity, avoided expected loss, or strategic option value.","line":303},{"type":"heading","level":2,"text":"22. Break-even","anchor":"22-break-even","line":305},{"type":"code","lang":"text","content":"Required incremental units = Total intervention cost / contribution per incremental unit\n\nRequired conversion lift = Total intervention cost\n                         / (eligible volume × contribution per conversion)","line":307,"id":"12.22-break-even.c1"},{"type":"paragraph","text":"Break-even is often the most credible outreach number because it asks whether a small lift would justify a diagnostic.","line":314},{"type":"heading","level":2,"text":"23. Double-counting map","anchor":"23-double-counting-map","line":316},{"type":"paragraph","text":"Assign overlapping models to an `overlap_group`:","line":318},{"type":"list","ordered":false,"checklist":false,"items":[{"text":"acquisition/conversion/content/PR demand;","depth":0,"checked":null},{"text":"retention/support/reputation;","depth":0,"checked":null},{"text":"labor/automation/capacity;","depth":0,"checked":null},{"text":"availability/conversion/service failure;","depth":0,"checked":null},{"text":"pricing/upsell/revenue expansion.","depth":0,"checked":null}],"line":320},{"type":"paragraph","text":"Use the maximum justified effect within a group or build one integrated funnel model. Do not sum independent-looking estimates that affect the same customers.","line":326},{"type":"heading","level":2,"text":"24. Financial impact matrix","anchor":"24-financial-impact-matrix","line":328},{"type":"table","headers":["Gap / blind spot","Evidence","Mechanism and unit","Loss/value range","Model class","Proposed solution","Investment range","ROI/payback scenario","Key missing inputs"],"align":["left","left","left","right","left","left","right","left","left"],"rows":[["","","","not estimable or L/B/H","M0–M5","","L/B/H","",""]],"line":330,"id":"12.24-financial-impact-matrix.t1"},{"type":"heading","level":2,"text":"25. Model review checklist","anchor":"25-model-review-checklist","line":334},{"type":"list","ordered":false,"checklist":false,"items":[{"text":"units and currency consistent;","depth":0,"checked":null},{"text":"period consistent;","depth":0,"checked":null},{"text":"reported vs measured vs benchmark vs assumption labeled;","depth":0,"checked":null},{"text":"low/base/high monotonic and plausible;","depth":0,"checked":null},{"text":"gross revenue not confused with contribution or cash;","depth":0,"checked":null},{"text":"attribution and realization applied;","depth":0,"checked":null},{"text":"implementation and recurring cost included;","depth":0,"checked":null},{"text":"time-to-value and ramp included;","depth":0,"checked":null},{"text":"overlap/double count checked;","depth":0,"checked":null},{"text":"sensitivity shown;","depth":0,"checked":null},{"text":"downside and stop rule shown;","depth":0,"checked":null},{"text":"scenario language used in outreach.","depth":0,"checked":null}],"line":336}]}