What Do We Mean by ‘Metrics’?

Everyone’s heard the expression “What you can measure you can manage”, but just having measurements isn’t the full story. You need to have the right measurements, and then be able to interpret them and use them to develop effective business strategies.

That’s the real difference between having”metrics” and simply taking measurements.  Measurements are the raw products of quantifying something, such as a weekly sales total or the number of people on the payroll. Numbers on their own aren’t metrics.

Metrics, on the other hand, are numbers that have been obtained for the purpose of managing an enterprise. They provide the means by which progress towards a goal can be determined. They can be benchmarked and acted upon for greater profitability. They can be alarms that tell if a business is underperforming or the means by which outstanding performance can be recognized.

For example, an analysis of metrics can be used to tell whether a marketing campaign is successful or not. Metrics can identify loss areas of a production system, show which products can be up-sold to existing customers, and which customers are the most profitable or unprofitable for the business.

Metrics are therefore a measurement of success. A company with metrics that clearly show success in meeting targets and achieving profitability will be worth much more than a company that is apparently successful but can’t prove it with metrics.

To determine which success factors to measure and the appropriate metrics for each, there needs to be a clear understanding of the company’s goals. If the business wants to increase its market share the metrics on which it focuses will be different from those of a company wanting to increase the satisfaction of its existing customers.

Matt Plaskoff of Plaskoff Constructions in the U.S. is one SME proprietor who really watches his metrics:

“We know it takes an average of three months for a lead to turn into a construction project, so we know that if we meet our lead goal for a particular month, three months later we likely will be busy.

“This is called a leading indicator because the result of the metric is led by a measurement. In contrast, if we fail to meet our lead goal for a month, we can expect and plan for slow months of construction three months later.

“Based on five years of back data, we know that at the appropriate price about one-third of our proposals become projects. Therefore, we need to present to three times as many prospects as the projects we need, or 120 prospects per year to get our 40 jobs averaging $200,000 and totaling $8 million.”

Trying to manage a business without metrics is making decisions without having the information you need. It’s as impractical as trying to play golf in the dark, and just as dangerous. Without metrics how can you know if what you’re doing to grow sales is working? How can you know which elements of the business are profitable or loss-making? You can’t.

In another field Kevin Lee, chief executive officer of Did-it.com, Inc. talks about the most important metrics for search engines:

“Clear objectives, effective measurement, and appropriate metrics are critically important for small business marketing efforts. Marketers have learned that not all search-result click-throughs are created equal. Some visitors find what they are looking for while others just leave.

“The challenge is to translate your site’s business objectives into campaign objectives based on the right metrics. Metrics help you get the most out of your campaign, so make sure you understand how to pick which goals to suit your needs. The most common SEM metrics are: cost per order (CPO), cost per action (CPA), return on advertising spending (ROAS), and return on investment (ROI).”

Successful companies identify the metrics they need, then establish processes that capture the appropriate data, analyze the information and generate reports that yield these metrics. A comparison of these metrics over a period of time is a valuable management tool that every business should use.

Copyright 2005, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com.