Look at Business Drivers, Not Just Results

For some reason, many of the CEOs at my previous consulting clients like to review their companies’ results on a daily basis using top-line metrics.  How many widgets were sold, how many hospital beds are full, etc.?  If yesterday’s numbers for a  particular product or location are down, they often go into fire-fighting mode and spend time trying to figure out what happened, talking to the relevant manager, and planning a response.

This kind of monitoring can be useful to flag sudden problems, but it’s mostly a big time sink.  More importantly, it doesn’t provide any substantive insight.  You feel like you’re keeping track of the state of the business, but mainly you’re just going through the motions.  Looking at high-level numbers provides no deeper understanding into why the business is performing a certain way and can even be misleading.  Not that I don’t do the same thing.  I get far too fixated on the visitors and page views for this blog at times.

So what should you do instead?  Well, business intelligence, as it’s called these days, has matured into its own vast (and expensive) field, but here are a few thoughts to start with.

Establish more meaningful metrics

Checking top line numbers doesn’t tell you much.  Are sales down because a competitor launched a new promotion, the salespeople are slacking off, or demand is trending down?  Hard to say.  Breaking the numbers down to a more detailed level doesn’t answer these questions by itself, but it’s an important first step.  So look at sales broken down by new versus old customers, by channel, by product, and so on.

Look at trends rather than blips

One day’s data is likely to be more noise than signal, and this becomes even more true once you start doing breakdowns as discussed above because you’re dealing with smaller sample sizes.  Everything else being equal, each product or customer segment will be more volatile than your overall business.  So it’s much more useful to look at the trend over a few weeks to see whether results are moving in a consistent direction.  Try to review each week’s new results in the context of the past 4-5 weeks.

Use a dashboard

Put all of these metrics in one place where you can quickly and regularly review them – in other words, a dashboard.  The format isn’t important.  It could be as simple as updating a quick spreadsheet in Excel.  For most companies, it makes more sense to start with a manual version of the dashboard than to get a software package initially.  You need to figure out which metrics are useful and exactly how you want to define them before you get bogged down in implementing a system.

Start instrumenting your business

While instrument is not really a verb, the point is that sometimes you need to generate more information to get more insight into what’s going on.  It might mean keeping track of your sales pipeline better – numbers like how many calls are made per day, when proposals get written, and what your win/loss numbers are.  Those data can start to give you a much better idea of how productive your sales process really is.  The same goes for any part of your business.  If a critical aspect of it is a black hole, figure out how to start gathering more data on it so that you can make more informed decisions.  For example, try using different phone numbers for different sources of inbound sales leads so that you can better determine which lead generation programs are the most effective.  Virtual number services like Google Voice now make this much easier than it used to be, although this is still an area where there are no good turnkey solutions, to my knowledge.

Do experiments

One of the challenges in marketing is separating the results of your marketing programs from other factors – the weather, competitors, economic growth, you name it…  The best way to minimize the confusion is to run experiments with different programs in separate geographies.  For example, many small and large businesses still run Yellow Pages ads but have little idea how effective they are.  One solution could be to take a baseline measurement of revenue in several regions, then run different ads in each region.  You could have some regions with a large ad, some with a small ad, and some with no phone book ads.  Variations in the results across regions will help you better understand the ROI of different marketing approaches.  This is often called A/B testing.

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