Do you know your business… quantitatively?
Actionable Data-Driven Knowledge
As promised, here is a short article dedicated to understanding your business, quantitatively. It is a major component of a data-driven culture. It is a major component of success. In fact, if the only management improvement you make this year is to better understand your business’ numbers, it is still guaranteed to be a better year than if you didn’t.
Quantifying your business is about measurement. It is about collecting feedback. It is about learning. A business that isn’t learning is not going to be a business very long. Take that to the bank, or the stock market. It is truth.
As an analyst, one of my favorite experiments when I am first introduced to a new company is to walk the floor asking employees about the numbers. Sadly, results are rarely encouraging. Some companies are better than others, but most fall short. I suppose it is a large component of why I was brought in to begin with.
If you want to address a problem like this at your own company, you need people to have access to solid reporting. To build solid reporting, you need to know your numbers. And so with that in mind, here we go…
How do I know what numbers matter?
Well, for starters, size matters. It matters quite a bit. And, how do most businesses size themselves? They use sales (or revenue). Annual, quarterly, weekly, or daily — sales is a metric that you need to know. You should also know what last year’s size was. Size matters — but momentum matters more. Are sales growing, stagnating, or shrinking?
The next way businesses size themselves is by number of customers. You want to know how many and for how long. Now there are nuances here, but even if you just know total customers ever — you are getting value. Total active in the last year, total added in the last 30 or 90 days, and total who have made more than one transaction (purchase) with your company are even better.
What is your company trying to do?
Every company is trying to grow and yours is likely no exception. Some are growing customers, some sales, and some margins. Typically these fall into one of five categories.
- Increasing the customer base
- Increasing the price
- Increasing usage (# or purchases)
- Decreasing the cost to acquire
- Decreasing the cost to maintain
Remember — decreasing cost = increasing margin or profit — it is growth through efficiency. Beyond our first bullet, all of these are incremental to what we talked about earlier. Some companies are attempting to do all five (good luck with that), others just one. The simple combination of size and purpose create a handful of metrics that all employees should know.
Ideally speaking…
You and your team would receive a daily flash report. This report would detail customers, revenue, and the metrics that matter most from the list above. These metrics would be listed alongside the same metric from one year ago with a quick calculation of growth (both nominal and percentage).
Even better — you would receive a full time series showing these metrics for the past two calendar years (at whatever frequency is most logical — daily, weekly, etc). This should be in the former of a standard bar chart or line graph. If you work for a company that produces and endless list of daily numbers in an email that scrolls for half and hour — just stop please! All that does is confuse everyone. You are not superior because you use numbers over pictures — you are just stubborn and likely confused. If you have never worked somewhere with a daily email report that is numerous pages long and an endless string of numbers, consider yourself quite fortunate. On the plus side, it would make a great short-selling strategy.
But is it working?
Remember my test? If your daily flash email is well formatted, four of five employees will know their numbers. At places with the stubbornly stupid emails, everyone declares that they know the number… and then they go and look it up. It is blatantly obvious because it takes several minutes for them to scroll through the numbers. They then proudly announce one, then say “wait”, and announce a different one with a confident “yes, that’s it”.
This is a great place to stop this article. There is much more to speak to here, but that will wait for a future article. To end, know that a well-designed daily flash report (or even weekly) will absolutely change the culture of your company. Just remember that requires someone with report building experience, strong but simple visualization, and the right selection of numbers. More soon! Thanks for reading!
