What is a Good Metric?
Analytics is about tracking the metrics that are critical for your business. Usually this metrics can give a picture of your business and relate to your business model, things like where the money comes from, where is it going, how many customers are coming in and how many are leaving.
In a small business you don’t always know which metrics are key, you might frequently change the activity you analyse, or you don’t consider your company to have any relevant data, so you do not collect it.
What makes a good metric?
his is a great question for any company that wishes to know more. Metrics change from business to business, from field to field, but there are rules of thumb, as described by Alistair Croll and Benjamin Yoskovits Lean Analytics book.
A good metric is comparative. Being able to compare a metric to other time periods, group of users, or competitors helps you understand which way things are moving. “Increase conversion from last week” is better than “2% conversion”.
A good metric is understandable. If people can’t remember it and discuss it, it’s much harder to turn a change in the data into a change in the culture.
A good metric is a ratio or rate. Accountants and financial analysts have several ratios they look at to understand, at a glance, the fundamental health of a company. You need some too.
Why ratios are better
- Ratios are easier to act on. Think about when you driving a car. Distance travelled is informational. But speed — distance per hour — is something you can act on. It tells you your current state and if you need to speed up or slow down to arrive on time.
- Ratios are inherently comparative. If you compare a daily metric to the same metric over a month, you’ll see whether you’re looking at a sudden spike or a long term trend. In a car, speed is one metric, but speed right now over average speed this hour shows you whether you are accelerating or slowing down.
- Ratios are also good for comparing factors that are somehow opposed or for which there’s an inherent tension. In a car, this might be distance covered divided by traffic tickets. The faster you drive the more distance you cover — but the more tickets you get. This ratio might suggest whether or not you should be breaking the speed limit.
A good metric changes the way you behave. This is by far the most important criterion for a metric: What will you do different based on changes in the metric?
Metrics change from business to business, if you own a restaurant you will have a different metric than a manufacturing plant. There are universal metrics such as accounting values for revenue and costs and so on, but then you can have ‘Experimental Metrics’, there are the ones you measure when adjusting a product, when performing an experiment and optimising your business. This is of critical importance, because these drive the drastic changes in the business.
These are a few important aspects to consider when measuring a metric for your business. We cannot recommend enough the Lean Analytics book, it will help you understand how can you improve your data collection and not get lost on unimportant numbers.
We will continue to share these concepts and help drive change in small companies.