How to Define Actionable Metrics

actionable metricsAre you focused on actionable metrics or vanity metrics?  I’ve mentioned one of my favorite books, Eric Ries’s The Lean Startup, in previous posts and I’ve also referred to his distinction between vanity metrics and actionable metrics. For those who haven’t read the book or aren’t familiar with the term, vanity metrics are those that might make you feel good, but don’t result in action. Here are some common examples:

  • Pageviews
  • Attendees at an event
  • Twitter followers
  • Facebook likes

How to Identify Actionable Metrics – Begin With Your Business Model

If you are an eCommerce site, you might think that revenue is actionable. It isn’t, at least by itself, and here’s how to tell.  OK, revenue is up. What action do you take? Go out and celebrate? Yeah, sounds like a vanity metric to me.  Why is revenue up? If you haven’t got a clue, it’s a vanity metric.

On the other hand, if you have a baseline of revenue, and you introduce a new website design for a portion of your website with improved images and more information about those products, and revenues for those products are up 20% compared to the same period last year, then revenue is an actionable metric. There is an obvious action: apply that new website design to the rest of your site.

If you are a business-to-business company, and your transactions take place offline, what can you measure that leads up to revenue? Common metrics here might include Sales Qualified Leads (SQLs) and Revenue Pipeline. Again, these need context.  What changes are you making to lead to higher numbers of SQLs or a larger pipeline?

If you are a non-profit organization and you work in the development office, then clearly you’ll want to measure donations and planned giving. But don’t stop there. Ham fisted development people always seem to be hitting you up for a donation, even when you’re brand new to the charity and trying to figure out if this organization is worth your time, or you are a long term donor, and have already given generously this year. More skilled development people look for the leading indicators of giving or increased giving, and establish metrics around those leading indicators. Have you attended more events recently, even if you haven’t given? Have you volunteered and given your time to the organization?

Don’t forget metrics that look at the cost side of your business model, as well as the revenue side. Measure gross margin by customer or by transaction.

Work Forward from and Dive Down into Your Vanity Metrics

Vanity metrics in themselves don’t provide an opportunity for action. However, they sometimes can provide leading indicators that direct you to more actionable metrics. For example, while an increase in pageviews isn’t that actionable, you may find more information taking a look at what users do next. How many of them are returning to the site? A low return-rate may indicate a need for more usable content, and an increase in returning users may indicate that you’re getting more engagement, which in turn may lead to more conversions. Who are your visitors and why are they coming to the site? I once saw a company that was celebrating an increase in traffic, measured by users and pageviews, only to find out that most of those new users were coming to the site looking for a job. Someone in HR had put a new widget on the Careers page that was driving traffic.

Which of your twitter followers are re-tweeting your tweets? Which tweets are getting re-tweeted? Which attendees at an event end up buying something from you? How do they interact after the event? Can you increase the conversion rate of attendees?  These kind of questions take you beyond the feel-good aspect of vanity metrics and move you into actionable insights.

Vanity metrics are often metrics at the top of the sales funnel, but unless you drill down and work forward from their visits (or follows or likes), you won’t know whether an increase at the top of the funnel is going to produce sales, or whether you simply have a leaky funnel, with little or nothing coming out of the bottom.

Your Biggest Unanswered Questions

What are your biggest unanswered questions about your customers or prospects? Are there metrics or tests that could help you answer these questions? These metrics are good candidates for actionable metrics. For example, where do your customers with the highest gross margin come from? Which campaigns provide the most efficient sources of leads?

While vanity metrics may make us feel better as marketers, our real value comes from defining actionable metrics, and acting on them.

Comments

  1. Jim,
    There is a small but growing tribe of Lean thinking sales and marketing thought-leaders who “see” revenue creation through a more scientific, more accurate mental model. You are ahead of the curve.

    In this post you raise a good question, “what creates revenue?”. What is the “pacemaker loop”, the revenue step that sets the pace for all revenue flow? I suggest it is the first baby step in your formal sales process. Instead of measuring Leads, revenue executives should be measuring Ideal Sales Opportunities, which is a shared sales and marketing goal.

    If a marketing lead doesn’t convert to a sales opportunity, what is it? Muda. A waste of time and resources.

    Keep up the good work. Let me know if there is anything I can do to help.

    Brock

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