The importance of metrics in business decision making
Starting the business is all about building a product and communicating it to the right customers; if you manage to do it right, you’re most likely to come through. This, though, is never enough, because successful small businesses sooner or later need to be taken to the next level. This is where most of the failures happen – many entrepreneurs don’t realize the importance of information and the role of tracking and analyzing relevant business data known as metrics.
What is business metrics?
Simply put, business metric is a quantifiable measure businesses use to track, monitor and assess the success or failure of various business operations. Paving the road to success depends on companies ability to be well-informed about their own business, and they achieve that knowledge by developing and utilizing effective metrics.
Yeah, but why?
The overall point of using business metrics is to communicate company’s progression toward certain long and short-term objectives. Metrics are used to drive improvements and help organizations focus their people and resources on what’s important. They should reflect and support the various strategies for all aspects of the organization, including finance, marketing, competition, or customer requirements and expectations. What you should be able to read from them is:
- Where the organization has been?
- Where is it heading?
- Is there something going wrong?
- Which targets are reached and which are not?
Another very important aspect of implementing this model is communicating the insights to your employees. It makes a huge difference if you tell them that metric’s target is “to reduce complaints down to four per month,” then “have a 20% reduction per month.” Employees need to understand the metric in order to know what is expected of them.
Benefits of data tracking
To get the most benefit from metrics it is important to keep them simple and manageable – it is better to have 5 meaningful metrics that the organization will use than 50 that it won’t. Another main condition is that no manipulations are allowed. Fudging metrics benefits no one – to deliver real progress, everyone involved with the metric needs to be completely honest. Comply these, and you can expect that your metrics will:
- Drive the strategy and direction of the organization.
- Provide focus for both organization and employees.
- Help you make decisions.
- Drive the performance.
- Produce good internal and external public relations.
Leveraging the latest data can uncover new opportunities and help you measure the results of your efforts. Martin Zwilling, founder, and CEO of Startup Professionals, listed ten key business metrics which he believes every small business owner should monitor constantly. Tracking them is important for many reasons listed above, but probably the most important one is cultural, because it leads to a culture of success when you see the key business metrics moving in the right direction – as he points out.