Modern business loves its jargon. One of the most beloved terms related to measuring performance is ‘metrics’. Business analysts love to talk about metrics and how these influence the company’s understanding of its own performance. Unfortunately, far too many of the people who talk and write about metrics do not understand them. They have no clue that not all business metrics are equal.
A business metric is nothing more than a piece of data that indicates how a company is performing in a particular area. Before the internet age, businesses used to call them key performance indicators (KPIs). The older term is still used from time to time.
The thing about metrics is that they are not static. They aren’t black and white. They differ from one industry to the next and among different companies in the same industry. Take BenefitMall, for example. They are a general agency that offers insurance broker services nationwide. Their most important metrics bear little resemblance to the metrics the Holiday Inn hotel chain focuses on.
The world of business metrics is so vast that understanding them requires dividing them into categories and subcategories. If we were to use a hierarchical structure, marketing metrics would be one of the top categories. They measure the performance of various marketing campaigns.
Marketing metrics themselves are divided into multiple subcategories:
· Activity metrics measure how prospective customers are responding to marketing activity.
· Funnel metrics measure how effectively marketing campaigns are generating leads.
· Revenue metrics measure how effectively marketing efforts are translating into revenues.
Take a closer look at revenue metrics in relation to marketing and you quickly discover that multiple categories and subcategories overlap. After all, revenue isn’t influenced only by marketing. It is influenced by everything a business does.
Profit and Loss Metrics
Another main category is profit and loss metrics. They may very well be the most important for certain types of businesses. They cover everything from revenues to expenditures to growth and margins. Business executives look at P&L metrics to get an overall idea of how a company is doing.
The most definitive metric in this category is the bottom line. Regardless of revenues, did the company make money or lose it? Very few metrics matter as much as profit and loss.
Targeting the Right Metrics
There are countless other categories and subcategories not mentioned in this post. Indeed, attempting to cover them all would require a dozen or more posts. The key take-away is this: because all metrics are not equal, companies have to target the right ones if they hope to derive any benefit from them.
What is important to BenefitMall may not necessarily be important to Holiday Inn hotels. The most common metrics utilized in the financial services sector will mean very little to the technology sector. Even when there is some overlap, the most important metrics to any company will be those that provide the most insight into what that company does.
Unfortunately, targeting the right metrics is not always as easy as it sounds. Figuring it out requires taking a long, hard look at what a business does in relation to its overall goals. Furthermore, discovering that a company’s metrics do not line up with its goals requires scrapping the current metrics and starting over from scratch.
Not all business metrics are equal. They do not all mean the same things to every company. And when push comes to shove, each company has to figure out for itself which metrics are most important. Reading a blog post and doing what everybody else does isn’t going to cut it.