What is the best way to create metrics for my business?
Are you drowning in your metrics but still unclear as to how the business is performing?
The aim of this question-and-answer style blog is to share some of the common questions we’ve been asked about creating metrics and provide guidance to help you develop metrics that are useful and useable for your business.
You will learn:
How to determine your most valuable metrics
Things to do to ensure they are used within the business
Common mistakes that are made when developing metrics
Q1. What are business metrics and how do I determine the most valuable ones for my business?
Business metrics are fundamental to any business to understand how the business is performing and to understand where improvements can be made.
The best metrics for a business are grounded in what your business objectives are. If your business is getting customers to use your service, this should be your most important metric.
Supporting metrics will help put that into context and to provide a rounded view of the business, for example, the number of returning customers and cost per acquisition of new customers would help to determine how much is being invested to drive the use of the service. Customer satisfaction would also be an important metric as this would influence the number of returning customers and ultimately the costs to keep a number of customers constant or growing.
The key though is not to have too many, so they can actually be measured and there is the context of how the metric is performing ie the increase Month-On-Month.
Metrics are often interconnected and there will be a relationship or correlation when one goes up another may go down. For example, sales could increase due to a discount strategy but that could be detrimental to margin.
Once you have determined the most important metrics for your business these will become your Key Performance Indicators (KPIs).
As the KPIs are set to monitor the most important aspects of your business these should be used to set your targets around. For example:
Increase Customer visitors by X%
Reduce cost per acquisition by Y%
Increase returning customers by Z%
Identifying your KPIs and setting targets in a considered way as described will help you create metrics that are useful to your business. Often this is the easy part. To make them useable, so they can be monitored and incorporated into ongoing decision-making, they need to be measured, understood, and easily accessible within the business.
Q2. What do I need to do to ensure metrics are used within my business?
There are many things you can do to ensure that metrics are used effectively within your business, including:
1. Agree and document definitions of metrics
Metrics need to be tracked or calculated. Always determine how this is going to happen and agree on the definition of the metric, as there are often numerous different ways to determine different metrics.
Do not assume that your definition is the same as everyone else's, the best way to ensure that everyone is using the same definition is by having it agreed upon and documented.
This is a relatively simple thing that many businesses don’t do, which means their metrics are inconsistent, not trusted, and not bought into.
2. Ensure that you have the data accessible to create the metric
If the data isn’t available the metric will never be created and can’t be used. Understand what data is available or start to put tracking or data capture in place to develop it in the future.
3. Think about how you are going to use the metrics
Is it nice to have or really going to shape decisions to improve the performance of the business? This is often where businesses start drowning in metrics as they think that they need to measure everything, just in case they need it, but actually never use it. When setting the metric think about how it will be used on a monthly, quarterly, and yearly basis, and what decisions will it inform.
Rather than having hundreds of metrics, it can be helpful to be able to have the ability to dig further into ‘why’ the metric is increasing or decreasing, but this is more about indicators or trends and should be supported with additional analysis and insight.
4. Share the metrics and performance with the business
This is important for two different reasons:
Firstly as a business, everyone should ensure that their plans ladder up to be able to deliver against the metrics and how it is expected to deliver.
Secondly, create a sense of transparency throughout the business as to how it is performing, to create a strong culture of working together to deliver the goal for the business.
5. Always ensure dashboards are up to date and have context
A number one complaint that we hear is that the dashboards never get used, I think this can be an impact of the first 4 points but also can be made worse by the data being out of date, poorly visualised, and with no context as to why the numbers are the way they are.
A really quick win to get everyone engaged in the dashboard is to put the context around why the numbers are the way they are, provide recommendations to improve and congratulate success.
One of the most powerful things about having metrics for a business is to see what isn’t working, as well as what is. Encourage this, as changing the things that aren’t working will lead to growth, rather than just having to report a ‘good news’ story.
Q3. What are the common mistakes to avoid when developing metrics?
I have mentioned some of these already but I think it is worth repeating. These are some of the most common mistakes that we have seen over the years, that we would recommend avoiding:
Don’t have too many metrics.
Do have 6 or 7 carefully considered metrics that are set against your business objective.
Do have the ability to dig down further into each metric with some pre-defined indicators, ie customer status or product category, if your metrics are research-based, think about this in advance of setting up the study.
Do have a plan for how you are going to use the metric, i.e what will it inform or support?
Don’t make the metrics so complicated it takes too long to create them and no time for insight or context
Do put the metrics into context with any insight to help the reader understand the key messages.
Don't assume everyone knows how the metrics are defined.
Do agree on definitions upfront and ensure that you have the data available to measure them.
Don’t create the metrics and only use them in strategic documents
Do share them with the rest of the business, live and breathe them, use them to identify new opportunities and be transparent about measuring against them.
Do encourage the use of the metrics to support decision-making across the business.
Don’t just use them only for ‘good news’ stories
Do use them to determine what’s going wrong and what could be done better
We hope that this question-and-answer style Blog has helped you get a clearer understanding of some of the key things to consider when developing metrics for your business.
If you have any other questions, please do get in touch at firstname.lastname@example.org, we would love to hear from you.