Value Gap Calculator
Accessing the Value Gap Calculator
- Through the Main menu > Value Gap Calculator
- When delivering a service via the calculator icon in the app bar
How to use the Value Gap Calculator
Getting started
In order to launch the calculator, you'll need to select your client. Then you can create and name a new scenario. You can also rename the calculator, with this name flowing through to the report output.
Calculator structure
The Value Gap Calculator contains four distinct tabs and an impact summary that is visible from within all tabs.
This tab contains five areas to input data: Profit and Loss, Balance Sheet, Other Financial variables, Team Members, and Customers and Sales.
NoteThis tab contains three critical strategies related specifically to Cash Conversion that all impact the client's cashflow and cash conversion cycle (debtor days, inventory/WIP days, and payable days).
This tab contains distinct sections: Sales, Gross Profit Margin, and Overheads, that have the potential to impact cashflow and profit. The Sales section has a toggle to turn on the ability for more detailed drivers, only use these if relevant to the client (if using detailed drivers, ensure you've inputted data in the Customers and Sales area in the Inputs tab).
This tab focuses on productivity; more specifically, revenue per FTE and the impact of this on effective hourly rate.
Step-by-step process
- Enter your client's numbers in the Inputs Tab and work through the remaining tabs to identify improvement opportunities
- You'll likely have most of this data available for your business clients, if not use pre-work to obtain additional data, or work with the client to include appropriate estimates.
- After you've inputted data into the Inputs Tab, move through the Cash Conversion, Profit and ROI tabs and move the levers on the two or three strategies you think will have the biggest impact for your client.
- As you make changes, the Impact Summary will summarise the impact of your adjustments on cashflow, profit, and potential business value.
- Be sure to move the levers conservatively to ensure the potential impacts are achievable for the client.
Using the calculator interface
Tip: When using the calculator, collapse the left navigation panel using the arrow at the bottom to free up space to view the calculator.Working with different client types
Clients without Cost of Sales
What if my client doesn't have Cost of Sales and all expenses are treated as Other expenses?
Payable days is based on Payables ÷ Cost of sales (or Direct costs) x 365 days. If you have a client where all expenses are treated as Other expenses, you can enter all expenses (except any truly fixed costs) into the Cost of Sales / Direct costs input field and leave the remaining fixed costs in the Overheads input.
Clients without WIP
Where to begin
Using strategies & tactics
Strategies
Tactics
Bridge the gap between strategy and execution.
The Tactics feature allows you to take your Value Gap conversations to the next level by providing practical, real-world examples of how clients can implement the strategies you've recommended.
Each strategy in the Value Gap Calculator has a curated library of specific tactics — concrete actions or initiatives that the client could take to bring the strategy to life. After selecting a strategy, simply choose the relevant tactics that align with your client's situation. These tactics are automatically included in the Value Gap Analysis Report, offering a clearer and more actionable roadmap for the client.
Team member calculations
You have flexibility here! We recommend including total team members because everyone contributes to revenue, even if indirectly. However, if you prefer to calculate average charge-out rates for fee earners only, that's perfectly valid too. Just make sure to be consistent over time and be careful when comparing benchmarks that your calculations are consistent with the ones you are comparing to.
- Business owners who work in the business (even if not technically employees)
- Dedicated offshore team members (if you have a contracted outsourced provider, their costs should form part of your cost of sales as they're technically not team members)
Saving and generating reports
When you've finished with your scenario, you can save this or generate a report using the buttons at the top right.
Saving a scenario allows you to prepare a client scenario with their data inputted for you to return later. This is helpful if using the calculator with a client during a meeting. In this instance, we recommend noting down your 2-3 strategies and the appropriate adjustments for each so you're prepared for the meeting.
Generate a report after you've adjusted the levers based the strategies you're recommending to the client. This documents the specific strategies you've looked at, and the impact of each, as well as those that haven't been adjusted (which can be considered at later stage). After generating the report, you can download and attach to Meeting Minutes before providing to your client.
- It should take you approximately 6 minutes to use the calculator to prepare a Value Gap Analysis Report
- You can save multiple calculator scenarios for a client
Handling missing client data
This is actually a perfect opportunity! Use this as a way to demonstrate the value of regular Management Reporting services. You can say: "This shows us exactly why having regular financial reporting would be valuable - we need this data to make informed decisions about your business growth."
Best approach: Send pre-work questions or discuss directly with the client in meetings.
Alternative for Xero users: Run an Invoice Report, count the number of invoices (or use invoice numbers to work out the total for the year), and count unique customers (deduplicate in Excel).
Troubleshooting common issues
This usually happens when the balance sheet figures you've entered represent an unusually high or low point rather than the average balance.
Solution: Adjust the input to better reflect the typical average balance. For example, if debtor days appear too high because of year-end invoicing, use a more representative average accounts receivable figure.
The calculator works well for service businesses, but you may need to focus on the most relevant metrics. For service businesses, concentrate on:
- Revenue per ROI improvements
- Debtor days optimisation
- Overhead management
- Client retention, transaction value and transaction frequency
Yes, but there are a few approaches:
- Option 1: Use high-level consolidated figures and focus on overall sales and margin improvements.
- Option 2: Create separate scenarios for service vs. product revenue (ensure you don't double-count overheads).
- Option 3: Focus on the dominant revenue stream and address the smaller component through tactics rather than detailed modeling.
The calculator works better with non-farming clients, but it can still be used with some simple adaptations focusing on the most relevant improvement areas for agricultural businesses. For agricultural clients, a business / succession planning, budgeting, or management reporting service is more appropriate than the VGC.
Calculation formulas
Note: These are simplified calculations for quick analysis
Cash Conversion Cycle
- Cash Conversion Cycle = Debtor days + Inventory/WIP days - Payable days
- Debtor Days = Accounts receivable / Sales x 365
- Inventory/WIP Days = Inventory/WIP / Cost of Sales x 365
- Payable Days = Accounts payable / Cost of Sales x 365
Profit Calculations
- Net Profit = Sales × Gross margin - Overheads
- Sales (using detailed drivers) =
- Retained customers (Existing customers × retention rate)
- New customers (Leads generated × lead conversion rate)
- × Number of transactions per year
- × Average transaction value
- Cash Impact = Profit impact less tax
- Business Value Impact = Profit impact × Valuation multiple
ROI Calculations
- Revenue per FTE = Sales ÷ Number of FTE
- Effective Hourly Rate = Revenue per FTE ÷ 1,800 hours (Based on 40-hour week × 45 weeks, allowing for annual leave, sick days, and public holidays)
Need more help?
If you have specific questions about client scenarios or need help interpreting results, check out 'Tools' in Gap Academy!
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