This article is the third of four that are published in partnership with the M&A Community and are featured in Dutch on their site. As a service we also provide the English version for you, here.
Less is more: many teams are drowning in excessive figures, so cut back on key metrics.
Good management information is essential for growing a digital business. Of course, the data flow needs to be in order and the data accurate, but each level within the organization should also receive pertinent information. Therefore, ensure a hierarchy in the data. Fewer metrics are often better in this case. Most teams are drowning in an excess of numbers.
Five Metrics
In online retail, there is a fundamental formula that everything revolves around. Revenue is the product of visitors, conversion, and average order value. Of course, there is a lot underneath this, but these four metrics are the essence. Additionally, the importance of ESG is increasing, which stands for socially responsible business practices. A metric such as the CO2 footprint is increasingly important at the strategic level. We can add this as the fifth metric.
This is the basis for the CEO to make decisions, the basic formula of the business model. Of course, the focus can differ from quarter to quarter. One moment, the main concern might be traffic to the site or conversion of visitors into customers, and the next moment, the order value. But at a strategic level, the number of metrics can be limited to three to five. The CEO should certainly not be concerned with the metrics that the marketing team looks at daily.
Hierarchy in Metrics
At the executive level, it's about outcomes such as revenue and profitability. At lower levels, it's more about the metrics driving these outcomes. This is the difference between strategy and execution. Operational teams per department look at all relevant details, such as cost per customer, product mix, or customer retention. At the execution level, it's really about details like traffic at the channel level or the impact of campaigns on conversion. This hierarchy in metrics creates a system for managing the company.
Layers have their own data needs Different layers within a company have their own data needs. This also applies to different roles at the same level. Although an investor, like management, looks at a strategic level, they may find different metrics important. Within the management team, there are also differences.
The CMO is on the revenue side of the business and looks at different things than the CFO who is on the cost side.
Overwhelmed by Information
In a digital business, virtually everything can be measured, from traffic and revenue per customer to order volumes per product and customer retention. Often, companies boast about having more indicators, assuming it to be better. The risk is that people become overwhelmed by information they can do little with and make decisions on the wrong grounds. They can't see the wood for the trees.
In conclusion, a business needs to carefully consider the design and the system behind the metrics. A hierarchy is needed: from the strategic level to the operational level to the execution level. If this is not yet in order, it's time to get to work on it.
This article was written by Jons Janssens, Co-founder of Conway & Co. Feel free to connect to him here.
You will find the Dutch version of this article at M&A here.
