Ryan Leatherbury

Business. Tech. Life

A Primer on Business Metrics with Lean Analytics

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There are 2 types of companies: Ones that track business metrics and ones that should. If you’re in a company that does, you’ll want to check out Lean Analytics by Alistair Croll and Benjamin Yoskovitz.

So can you relate to this one?

How will we know we’re successful with the product launch?
You need to do $xxM next year.
OK, so how will we measure progress?
I just told you.

Lean Analytics book-cover-full-290x435-250x375But what about the leading indicators that tell you if you’re going to hit your revenue numbers? After all, you can’t manage what you can’t measure.

The goal of Lean Analytics is being able to measure progress and quickly adapt.

That said, success at just about any business model boils down to managing a sales conversion funnel.

Conversion rate for an e-commerce company is based on the percentage of webpage visitors that buy something. In the end, it boils down to making more money from selling and delivering stuff than it costs to acquire buyers.

In the same way, SAAS conversion is based on the percentage of users that become paying customers. Media sites track conversions of clickthroughs of ad banners. Two-sided or marketplace sites that connect buyers and sellers track conversions based on searches that return listings resulting in transactions. Even for business, on-premise software conversion rate is based on qualified pipeline to trial to sales ratios.

Dave McClure describes the sales conversion process through Pirate Metrics based on 5 elements: Acquisition, Activation, Retention, Revenue, Referral (AARRR). Even with complex variations and combinations of different business models, it comes down to tracking the process of getting attention, turning that attention into users, increasing user activity, getting paid somehow and having more people referred to your offer.

A very simple way of looking at a basic sales funnel looks like this:

Simple Sales Funnel

Simple Sales Funnel

Of course things get much more complex than simple funnels. As Alistair Croll points out, real life often looks more like water-slides or pitchers.

In any event, the key to understanding the relationship between each phase is to choose the key performance indicator (KPI) you want to improve that represents the most risk to your business now. In other words, don’t worry about retention if you haven’t figured out how to acquire a critical mass of customers yet.

Good metrics are comparative, understandable and often a ratio. Ratios are great because they show the relationship between two things that you want to track.

On the other hand, vanity metrics make you feel good, but not actionable or directly related to your success. Vanity metrics are things like page views, which only really matters if you’re running a media site that gets paid for each advertisement impression. They’re like red herrings that lead you into a sea of noise that doesn’t matter. So the goal is to figure out the metrics that do and track them closely.

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Ryan Leatherbury • May 10, 2015

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