As a business owner, you already know building a robust business plan certainly isn’t enough anymore. Your work doesn’t end with hiring competent employees and strategists for your company. You also need to keep a check on whether or not your business efforts are working in favor of your startup.
That’s where marketing and business metrics come in. Business metrics are essential for startups, as they help you understand the success rate of the strategies and plans and analyze if they’re working toward achieving the targeted return on investment (ROI) or not.
Metrics work as a navigator and drop hints as to when you should consider making alterations in your business strategy. But, banking too much on them can have an adverse effect on your startup. However important metrics might be, you need to understand that not all the parameters are suitable for your company. Therefore, measuring the wrong metrics and making changes to your plan of action based on that incorrect data can have negative consequences.
Here are five notions most entrepreneurs have when it comes to business metrics—and some solutions for fixing these mistakes before it’s too late.
PAGE VIEWS AND EMAILS SUM UP TO SALES
Page views or search engine queries could be reporting a million searches per month, and yet the after effects on your ROI may amount to zilch. Page views can be misleading in the sense that there could be just one searcher who made the most searches. Moreover, the massive number could also be because the searcher couldn’t find the right result.
Although traffic on your website is considered an important metric, especially for content marketers, it can turn out to be a vanity metric that doesn’t shed much light on the actual digits your business is scoring. Even with a million page views, you could get no business.
The same goes for opened emails or the number of email subscribers you have. Even with 10 thousand subscribers (who are not really leads), you may not make a penny. If you’re using Google Analytics, chances are you may see an increase in the numbers and conclude that your business is doing just fine.
METRICS SHOW YOU THE ENTIRE PICTURE
Most marketers understand that certain metrics and key performance indicators (KPIs) can’t throw light on the entire picture of how your company is performing. Therefore, it would be an amateur move to get your hopes up or make quick alterations to your strategies based on conclusions that don’t tell the entire picture.
You can’t just say your business has grown by the margin only because you’ve recorded a hike in the rate of customer satisfaction in a month. Looking into the bigger picture, it’s when you see that your customer retention rate has gone down that you understand your customer satisfaction hasn’t really improved, but has just gone up as an average.
This is precisely why you must not consider the performance of one metric alone. You need to look at the other side of the coin and combine the information to get clearer insight into how your startup is faring.
At the same time, you wouldn’t want to consider checking 10 different KPIs that will only add to your confusion. Always remember: The fewer metrics you consider, the better.
ALL THINGS CAN BE MEASURED
Take this for an example—you can calculate the page views and your company’s ROI, but it’s difficult to calculate qualitative metrics like customer satisfaction and employees’ interaction.
While Google Analytics can help you with most of the quantitative marketing KPIs and your cost department can provide an overview of the sales and expenses margins, none of the above can really give you a final number for the impact your business efforts have on your users.
The only way to get an idea of the qualitative metrics would be by linking them to quantifying parameters and establishing a foundation for the conclusions. But again, you need to be careful about choosing the correct metrics. Find a metric that corresponds closely with your goal.
METRICS CANNOT BE MANIPULATED
It isn’t wise for an entrepreneur to judge the work performance of the business costs and marketing plans using metrics alone. Moreover, applying the wrong metrics and arriving at rash conclusions based on them can also prove to be detrimental for your company’s performance.
For instance, take lifetime value (LTV) as a metric for your startup. If your company deals in products, LTV can be measured by taking the multiple purchases into account along with the assumptions made about the repeat rates. If your company is a startup, these metrics can be challenging to conclude using the poorly calculated LTVs.
When you consider a business that provides services, ascertaining the LTV can be a challenge in itself. Even when it comes to tracking employee performance, you need to remember that the KPIs can be easily manipulated. Employees can take the shorter route and deceive you by creating fake accounts and then cancel them later. This way, they’ll be able to meet the quotas you’ve set for them and you’ll have to pay them their salaries. Unfortunately, your sales wouldn’t go up. For marketing too, social shares can be manipulated by creating fake accounts.
The best way out would be to choose metrics that are difficult to manipulate. Also, you need to know how to track the metrics accurately.
THEORETICAL INTERPRETATION DEPICTS THE ACTUAL FIGURE
As an entrepreneur, you might not always understand how to assess metrics and KPIs. So, you may think hiring a cost specialist or a marketing analyst can help you overcome this obstacle. Since the specialists have been trained to analyze metrics closely, they can be the correct people to judge the KPIs and come to a conclusion about the performance of the business. But what they might not tell you is that the theoretical presentation of the metrics doesn’t always apply to real life.
For example, theoretically, you cannot rely on payback ratios and raise capital to fund the deficit period. The ratios work only in theory, and in the real sense are obsolete. Customer acquisition cost (CAC) is often measured incorrectly on an Excel sheet and fails to capture the actual costs of acquisition. Even when calculated correctly, CACs are assumed to be constant, but of course, they’re not.
You should rarely make decisions based on metrics alone. True, metrics can provide an idea of how your startup is performing, but the numbers may not always be accurate. The interpretations can also be vague and differ according to the analyst’s perspective and therefore fail to indicate the real picture.
So, it’s essential to choose the right metrics and know how to track and understand them correctly. If you don’t, you’ll end up drawing incorrect conclusions, which will affect your business as a whole.
About the Author
Business consultant and blogger Gracie Anderson is associated with Myassignmenthelp.