Business Metric Creation in Action

I recently published an article on Inc.com about “The 5 Characteristics of an Effective Business Metric.” This is important, because there is only one way to encourage a high level of performance in your organization and accurately judge whether or not you are achieving it: You need to consistently measure progress on corporate, departmental, and individual goals using relevant metrics.

CEO Skills business metricYou can read about the five criteria in the article (easily measurable, predictive of future business performance, etc.). I also included an example from sales of what I think is a good business metric. But how do you get there? I suggest working with new managers right away to develop three to five metrics that will reveal whether or not they are doing a good job. Here’s a conversation I had with a product management executive to come up with those metrics.

I had not worked with this individual before (he works for an early-stage software company), so I asked him to think about the key responsibilities of his job. He told me that his top priority is to deliver an exceptional product. I agreed. But then I asked, “How would we know if it was an exceptional product?”

He said he thought an exceptional product would be easy and quick to implement. I suggested that it would also have a high conversion rate from demo to purchase. In addition, we agreed that the better the product, the fewer support calls the company would receive, and the higher the renewal rate would be.

Then we set metrics for each of these areas. In short order we progressed from a high-level corporate or departmental goal to specific, measurable, individual goals that highlighted the fundamentals for this area of the business. 

Not every business metric will have all five characteristics, but you should strive for as many as possible. The point is to measure the right things in pursuit of success.

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