Are You Using The Right Metrics?

You’ve probably heard the old adage, “You get not what you want, you get what you measure (or inspect).”

In other words, you can create all kinds of great plans and initiatives for your business, you can put together vision boards and print your strategic plan on internal documents (or even your website) but, at the end of the day, the only plans/dreams/goals that will get accomplished are those with clear metrics established where there’s regular measurement and reporting attached to them.

You know this to be true in your own life. If you start out on January 1st with the primary goal that most Americans select (to lose weight and exercise more), chances are nothing has changed—if you haven’t put together a clearly defined measurement process with reporting and accountability attached to it.

Moreover, if you use the typical metric (weight or pounds lost) you’re probably using the wrong metric. Since muscle weighs more than fat, you could be decreasing the percentage of your body’s fat while increasing the percentage of muscle mass—both of which are good things—and yet feel depressed because the number on the scale is increasing (or possibly decreasing, but at a lower rate than you want—even though your health is improving).

There’s also the problem of making sure the metric fits your goals. For example, if you’re a bicyclist, chances are improving your maximum oxygen intake (VO2max) is more important to measure than pounds lost. Or if you’re a tennis player, your foot speed from side to side is far more important than pounds lost.

In other words, even if you have metrics, you might have the wrong ones (or less effective ones). And if you’re measuring the wrong thing, chances are you won’t get the results you want. In tennis, for example, if you want to improve your game, while losing weight is a healthy thing to do, chances are it won’t improve your game (and winning percentage) near what increasing your foot speed will (because you’ll be able to get to the ball sooner and therefore have time to get set up so you can take a better shot).

So, to help you evaluate whether or not you’re using the right metrics for your business, here are a couple of questions worth asking.

Q1: Are Our Metrics Primarily Leading or Lagging Indicators?

If you’re not familiar with this language, a leading indicator is something you’re measuring that if you accomplish it will lead to an increased probability that you will accomplish a goal (i.e. it’s leading the way). For example, measuring the number of outbound calls your sales team makes would be a leading indicator (if we make X number of calls, we should get Y number of sales).

On the other hand, a lagging indicator, would be something you’re measuring that is the result of some activity. Using the example from above, if you decide to measure the number of items sold or the total amount of sales revenue, you would be choosing a lagging indicator (i.e. something that’s the result of your sales activity like outbound calls and optimized sales scripts, etc.).

The difficulty of focusing on lagging indicators is that you usually have less control over them. For example, you have far more control over the number of outbound calls your team makes than you ever will have over your leads and prospects. In order for your lagging indicator to work, your lead/prospect has to decide “Yes, I want to buy XYZ”—and you have very little control over them.

Another example. I just got off a video conference today with a client of mine in the church world. Almost every church that I’ve ever met or consulted has one primary metric by which they decide if they’re winning or losing (weekly attendance). Now, I have nothing against measuring weekly attendance. The problem is, it’s a lagging indicator. So, my recommendation was to focus more on a leading indicator (the number of guests each week—i.e. foot traffic in business terms). Why? Because business (and yes, a church is a business) is a numbers game. If you get enough new guests each week, there’s a high probability that overall church attendance will grow. If, on the other hand, a church doesn’t get enough guest traffic over the course of a year, there’s no way it’ll ever grow its attendance number significantly.

So, take a look at your metrics and ask if each one is a leading or a lagging indicator?

Note: it’s not bad to use a lagging indicator as a key metric, it’s just better to focus on using leading indicators because you have more control over them and they’ll increase the probability of you actually achieving the result you want (the lagging indicator).

Q2: If We Succeed at Achieving These Metrics, Will We Actually Achieve What We Want to Achieve?

In other words, are you sure that what you’re really going after is the right metric. A classic example of this for most small businesses would be revenue. Every strategic plan has a top-line revenue number. But is that really what you want to achieve?

At the end of the day, the primary goal of most business owners or entrepreneurs is a profit number far more than a revenue number. As the saying goes, “Revenue is vanity, profit is sanity.”

A business that does $20M in revenue, but has $21M in expenses is not better than a $5M business with only $4M in expenses. While $20M in revenue sounds good, I think it’s safe to say that you and I would both prefer to be leading a $5M business with a million dollars in profit over a $20M business with a million dollar loss.

Another example would be social media fans. Lots of businesses are measuring how many Facebook fans or Twitter followers they have. But, is that really the best metric? If you have 5,000 fans or 50,000 fans is that achieving what you really want to achieve? Maybe. Maybe not.

My guess is that a company with 5,000 fans who are passionate about that company and buy frequently from them are far more valuable than the 50,000 fans from the other company who very rarely buying anything from them. In this case, measuring the value of each fan might be a better metric. If you could increase the value of a Facebook fan from virtually nothing to let’s say $3 per fan, then you’d know something (i.e. that, depending on your costs, you should probably be spending $1 or more to acquire a Facebook fan). In other words, measuring the number of fans isn’t your best metric choice. Measuring value per fan is.

So, looking at your metrics for this year, if you achieve them, will you achieve what you want to achieve … or not?

Q3: Will These Metrics Really Drive Our Strategic Plan?

It’s one thing to have a plan and another to have metrics. You can have a plan without metrics or a plan that has metrics unrelated to the plan or a plan with metrics that support the plan, but a plan and supportive metrics don’t necessarily go hand in hand … unless intentionally designed to do so.

For example, let’s say that your strategic plan says something about “taking market share” or “being the number one,” or “dominating your market” etc. All of those statements frequently appear on strategic plans. What’s interesting is that very rarely is there a top-level metric that measures that. The most obvious would be market share. If you don’t have a market share metric, chances are you won’t take market share or dominate or be the number one in your market.

Or let’s say your strategic plan says that one of your primary growth accelerators for this year is driving growth through strategic partnerships. That sounds good, but do you have a metric related to that?

In general, most businesses tend to have a handful of core metrics that they use year after year without asking if they need to add or change out some of those historic metrics to ensure that this year’s plan is executed well.

So, as you look at your metrics, do they really drive the successful execution of your strategic plan?

Q4: Are These Metrics Easy to Regularly Obtain?

Of the four questions, this one is the most pragmatic and tactical, but it’s still valid and critical. Why? Because another mistake I frequently observe during strategic planning processes is that businesses like to pick metrics that sound good without thinking through how they’ll obtain the numbers or how often.

For example, let’s say you want to improve customer love (i.e. you want raving fans). Someone will say something like, “Let’s do a survey and ask on a scale of 1-5(high) how much they love our products (i.e. if we get above a 4.2 rating we know they love us).”

That sounds good, but how easy is it to discover that number? Not very. Moreover, since it requires surveying customers, how frequently are you going to do that? Maybe once of twice a year.  Not very frequent.

Which is why difficult to obtain numbers, especially those that can’t be updated weekly (or at least monthly) make for bad key metrics.

Note: This doesn’t mean you can’t create a new reporting system, but, in general, it’s easier to select key metrics that either use numbers or data that you’re already collecting or would be easy to collect. For example, if you want to measure customer love, one way to measure that might be to measure the number of referrals made that translated into sales. Why? Because you probably already ask when someone buys your product for the first time how they heard about you (or why they bought). Since you already have those numbers (or could easily add that to your data collection set), that would be a much easier number to collect than having to send out a survey and wait for responses once or twice a year.

So, as you look at your key metrics, are they easy to obtain on a regular basis or not? If not, change them.

At the end of the day, if you want to drive growth and fulfill your strategic plan this year, you need to make sure you have the right metrics in place that will keep you and your people focused on the right things. To ensure you have the right metrics, ask these four questions.

1. Are our metrics primarily leading or lagging indicators? Make sure some are leading.
2. If we succeed at achieving these metrics, will we actually achieve what we want to achieve?
3. Will these metrics really drive our strategic plan?
4. Are these metrics easy to obtain on a regular basis?

If your metrics pass these four tests, chances are you have the right metrics. If they don’t, make sure you change them ASAP.

To your accelerated success!

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