In business, metrics matter. It’s key to make sure you’re looking at things that indicate truth or at least a pattern of truth. I’ve been working for the last few weeks on a client Optimization project where we’re drawing a pattern out of a mosaic of metrics and seeing some interesting insights.
While many people might agree that metrics matter, the obstacle is figuring out what metrics really matter, what they need to measure for, and how to interpret them right. For example, are “higher sales” always better? Yes, but the key to discerning how well you are doing, is whether sales are higher than last quarter, last year, after being adjusted for business seasonality, and for market growth of the category.
Metrics seem to me to fall into 2 camps: 1 are quarterly or annual views. Things like bottom-line, profitability, ROI do matter. And then there’s the measures that capture the ‘over the horizon’ a bit. For example, customer loyalty would be an interesting measure. If the Mars company makes an extremely high profit on their customized M&Ms, they might think all is right with the world. But they have a terrible return policy as measured by epinions and other google searches. And ultimately their loyalty or stickiness or return business is / will be impacted. If they are not measuring that, then they will see a future downturn in the business that they can’t see in today’s revenue numbers.
Ideas for key metrics:
Duh. The key is to trend over time and then ground in reality. Map against growth of the category to true it up to reality. There can be times where a product can be really lame-o, but still sell because it’s first to market. Showing category growth against sales shows where your true trend line will end up.
Measures whether you raise ASP or Average Sales Price (and presumably, value) over time.
Share of wallet could be one measure, share of market another. Share of market is going to give you a snapshot of how much you are capturing in today’s market. Share of wallet suggests a longer-term view of how reliant your customer is on you.
Meaning how much of the market are you capturing. Being 1% of a big market still means you’ll get stomped out like a bug. So it’s important to know the overall market size, and then the piece you can own.
5. Return Customers.
I love the fact that the first customer I served in 1999 still works with Rubicon. That’s a sign that we haven’t lost our ability to deliver what we say we’ll deliver, and that our value endures. Of course what was asked of us when it was a sole proprietor to what we can and do deliver now has changed. But we’ve been able to keep growing with our customers.
Measures how much affinity your customers have for you. In some cases, this is a measure of loyalty and could be the case with consumer products.
7. Upgrade rates.
One of my clients has an 80% upgrade rate, and another 14%. Both are category leaders but one works much harder at selling the next unit than the other.
8. Brand equity.
Measures both tangible attributes of your offer (fastest, best value, etc) and emotional attributes (safest, most trustworthy, etc) and indicates how ‘sticky’ you are in the mind of your customer. Usually tied to how much you need to spend to introduce the next generation of products.
9. Efficiency measures.
An internal view is to measure what it costs you to get to market. Sometimes referred to as net revenue per unit. Take all the associated sales and marketing expenses against units, and see trend over time. If it’s costing you more to make money, there’s a sign that things are off.
10. And, finally, what does the customer base say when you’re not in the room.
Check blogs and dialogues. Does your name get mentioned in community forums, and with what tone. Tracking and measuring opinion can be done with bullet proof accuracy in branding studies, or in pulse checks done fast and easy over time. But do know what impression you’re creating and what your customers believe of you. It matters. And learning it early allows you to adjust and continue to be successful.
I welcome learning ways this list could be tuned to your situation, and also feedback on what’s missing. The key is take this (or adapted) list and tune to your own situation and then (very important!) track over time. You can keep tuning but the goal is to find the metrics that measure for quarter or annual fiscal year, and some that can be predictive for 3 year views. That’ll help you manage both your daily business, and look towards the horizon to manage the future of your company.
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April 23, 2014 in Entrepreneurship