Five Questions You Must Answer to Measure Your Business Well

Arbitrary data need not apply

Published: Tuesday, January 2, 2018 - 12:03

Focusing on metrics is key to achieving your desired business results—but it can be difficult to determine which metrics actually matter. There are five major questions you need to answer to ensure the metrics you’re measuring matter and you can take action based upon what they tell you.

Some metrics are easy to put numbers to. Revenue, inventory levels, and customer retention are solid numbers. Knowing those quantitative measures is essential to understanding your business. That said, you also need to measure qualitative aspects of your business, such as associate engagement and customer satisfaction.

Regardless of the measurement, you need to answer five questions about it:
1. What’s the measurement’s purpose? Know the significance of the metric and what you’ll change in your business based on the numbers you measure.
2. What data source will you use? Different sources of data can yield different results.
3. How will you calculate the metric? Define a formula, especially for complex measures.
4. How frequently will you measure? Measuring takes effort. Be efficient and only measure as frequently as you need to.
5. Who will review the measure? Define the stakeholders who are going to receive the reports.

For qualitative measures, the data gathering method is critical. Use a simple and standard method wherever possible. Consistency matters over time so you can get true trend data. Put thought into the measures up front so you’re not changing them frequently and invalidating data you’ve already collected.

My firm conducts classroom training. At the end of each course, we’ve asked the same 14 qualitative questions for the last 13 years. Regardless of the class we’re teaching, the instructor teaching it, or which client we’re teaching it for, it’s always the same 14 questions. What that enables me to do is get a true sense of trend data and compare instructors, clients, and courses over time. I can look at a course that I just taught yesterday and see how it stacks up versus something I taught last year or even last decade. That consistency gives me a richness of data to analyze.

As you think about the measures for your organization think about both the quantitative and qualitative ones and apply those five questions to everything you’re going to measure.

Sometimes you’ll want to create your own measure in order to capture a unique aspect of your business or to drive a specific behavior. When building these unconventional measures, articulate the purpose of measuring it, and specify how long you’ll measure it, especially if it’s being used to drive short-term performance.

The five principles of measurement still apply to custom measures. What’s the measurement’s purpose? What data will you use? How will you calculate it? How frequently will you measure? And who’s going to review it?

When I worked for an organization that delivered services at consumers’ homes, we wanted to make a measure for how much our technicians were producing, but also hold them accountable for customer retention. We created a metric called “retention-adjusted production.” Let’s look at how the five principles apply to this particular situation:
1. What’s the measurement’s purpose? We wanted to measure how much work our technicians were doing on the customer’s property but also understand how many of those customers stayed with us. We did this because we thought we had a problem where technicians weren’t doing a good job, and we were losing customers because of it.
2. What data sources were we going to use? Well, we had two very clear data sources that were very consistent over time. We had our production numbers, and we had our retention numbers.
3. How will we calculate it? We took the production numbers and then we multiplied it by the percentage of customers that that technician retained.
4. How frequently were we going to measure? We decided we were going to measure this metric every single week, because that was a meaningful time period, and given the nature of our business, we would get regular cancellations every single week.
5. Who was going to review this measure? This measure went to the entire leadership team. Most important, it went to the head of customer service, and it was also shared with each of the branch managers so they knew if they had a technician that was causing problems.

We applied these five principles to create this retention-adjusted production metric and it helped us understand which technicians were causing the most cancelations, and change their behavior to improve our retention.

When you measure, whether you’re using standard metrics or you create your own custom metric, make sure you apply these five principles so the metric you measure will be meaningful.

First published on the thoughtLEADERS blog.

About The Author

Mike Figliuolo

Mike Figliuolo is the author of The Elegant Pitch (Weiser, 2016) and One Piece of Paper (Jossey-Bass, 2011), and co-author of Lead Inside the Box (Weiser, 2015). He’s also the managing director of thoughtLEADERS, LLC, a leadership development training firm. He regularly writes about leadership on the thoughtLEADERS Blog.