An interesting tweet came across the Twitter timeline today: “Most important reason to measure – to know what’s working and what’s not“ from @abelniak retweeting @amyblack and it got me thinking. Knowing what’s working and what isn’t is probably the most critical part of running a business. There are hundreds of metrics one could use if time and budget were no object, but a few relatively simple ones that can point to success or failure in software companies — yet too few companies track much of anything at all.
PTC, we just learned, tracks a lot. When the company reported results for its fiscal first quarter last week, it included a dizzying array of revenue breakdowns that are tied to their current go-to-market strategy. This strategy separates the universe into quadrants, with direct and indirect channel on one axis and small-to-medium businesses and enterprises on the other. By tracking results in each of the four quadrants on a quarterly basis, they are able to see relatively quickly when something is working and, perhaps more important, when it isn’t. Is a particular channel campaign driving license or services revenue growth? Is one quadrant cannibalizing another? Until they take their eye off this particular ball — and all organizations get distracted sooner or later — they are likely to succeed simply because they are tracking what’s most important.
What data do you use to run your business? Number of new customers? Average deal size? Market share? Proportion of business that is repeat? Number of deals in the pipeline? These are all important but hardly sufficient. Most companies tell me that they can’t get at the level of detail they need about their customers, the customers’ buying habits and behaviors, and how they prefer to do business. But these are all crucial to business planning and execution and I urge my clients to excavate through all of the data they do have to find nuggets. From invoices you can track buying habits; from gentle questioning you can discover how the customers prefers to pay for purchases, and so on. This doesn’t have to be an “analysis paralysis” project, but does require an open mind.
To start the thought process, I’ve written a short series of blog posts about metrics, how to gather the data and interpret it. The first post will focus on the types of external metrics companies often use to measure success: market share and category penetration. In many ways, this is the easiest data to obtain but also the least meaningful in running a business since overall market dynamics are out of the control of the typical business.
The second will discuss the cost of acquiring and keeping customers. In too many cases, this is higher than expected and may even exceed the revenue actually obtained from the customer, killing any profit expectation. A concept gaining acceptance is “customer lifetime value”; we’ll explore how this ties into acquisition cost and the need to establish a plan for each account.
The third piece will cover maximizing revenue from a customer once it’s been won. We’ll look at share of customer wallet, repeat buying trends and the like to see whether lessons learned from one account can be applied to others.
Finally, we’ll wrap up with a discussion on the difficulties of gathering and maintaining this data. Unless the information underlying a conclusion is correct, the conclusion itself is flawed. It’s too easy to fall into the trap of thinking that a quantitative decision is more valid than one based on qualitative factors.
So back to getting what you measure. Too often managers set up benchmarking or other measurement programs to justify an existing conclusion. That can be fatal, since data can be manipulated to make almost any point imaginable and “any point imaginable” will certainly not help grow a profitable business. Look in the boxes, drawers and other “paper places”. Have accountants slice and die data in different ways. Keep an open mind. There’s lots to discover.
I hope you enjoy the series. As always, please use the comment link if you have questions, comments or suggestions.
