Trying to operate a business without metrics is like trying to drive a car with no dashboard.
Actually, it’s worse than that. It’s like trying to drive with your windshield blacked out.
So fine. It’s not hard to agree that you need to measure performance, to make informed decisions. Now the work starts.
Coming up with the right metrics, making sure they are accurately computed, and interpreting them correctly — so you get useful, actionable answers — are three whole subjects in themselves. And they are meaty. This is not something you just toss off over coffee one day, and you’re all set.
I’m not going to fit a complete treatise on this into a little newsletter. But I’d like to introduce you to the concepts, enough to get you started in the right direction.
THE RIGHT METRICS
First of all, notice that it is plural. METRICS not METRIC. I guarantee no single metric is going to do the whole job, because in any business there are many steps that add up to the end result, that means money in your pocket. You start with the final result you are going for and what would measure that, but think about it. It isn’t just Total Sales because you could be selling at a loss. In many businesses’ Sales and Production and Collections occur at three different points in time and all three have to be working to make a successful business.
Some of the other steps or factors that need to be considered to a greater or lesser degree, include Hiring, Lead Generation, Repeat Business, and Quality Control. In our business a vital metric measures a new client making his second purchase, because someone who buys from us twice is likely to be a good client for years. Another is Recurring Billings – monthly payments that can be depended on due to ongoing contracts.
You can get quite enthusiastic figuring this out and fine tuning it.
ACCURATE MEASUREMENT
An inaccurate metric is not much use. A wrongly calibrated speedometer leads to traffic tickets, honking horns and crashes. It can be quite hard to get an accurate number. If, like ours, your business is heavily Internet dependent, chances are you need Google Analytics for key metrics. But Analytics is complex and the definitions of the various breakdowns are often highly detailed and can radically affect the numbers.
INTERPRETATION
The interpretation of metrics takes imagination. What is the reality behind the numbers? If the metrics are sensible, well-defined and accurately measured, they can paint a picture of reality, that makes planning and judgement possible. This almost always involves multiple metrics, comparing one to another, or the same metric at different times, as one asks oneself the question, “what could explain this combination of facts?” And that often involves further investigation.
Sounds complicated and difficult? That it can definitely be. But it’s way better than the alternatives: guessing and hoping.