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The biggest metric mistake? – you do the maths

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Sales revenue, margin, profit, customers per day, average sales value et cetera are all standard metrics in identifying how well your business is doing. There are however metric aspects which businesses can get completely wrong resulting in poor decisions.

The key objective of most advertising and promotion campaigns is clearly to increase business. To measure success or failure of a campaign you measure return v cost in standard ways. Enquiries generated, website hits, sales etc. These examples are all recognised, simple, standard metrics but the flaw is that most businesses measure advertising and promotion results only within the promotion period.

To prove the point, I’m going to use a very simple example. A 3 months advertising campaign costs £10,000. In the period before the campaign, retailer sales at a 30% margin were £100,000 (profit £30,000). The advertising campaign is targeted to achieve minimum sales of at least £150,000 during the campaign period as this would pay for the advertising and return a slightly increased profit of £35,000. Actual sales results during the campaign period were £120,000. This was a 20% increase in sales but given the £10,000 advertising cost, profit was only £26,000 (£4,000 below pre campaign norm). The campaign was therefore deemed to be a failure as the 20% sales increase did not generate enough increased profit to pay for the advertising. Deemed as a failure, the advertising method and medium were removed from future consideration.

We need to look at this in a different way. What if the advertising generated 26 new customers who spend £25 per week with you for a year. Extra profit generated from these new customers would pay for the advertising. What if these 26 customers stayed with you for 3 years, this would generate a profit increase at 3 times the cost of the advertising. To gauge level of success or failure, an accountant will measure profit generated during the campaign period.   An entrepreneur measures a diverse level of impacts during and beyond the campaign period.

Measuring the number of new customers generated by average customer spend and how long a customer stays with you is one example of how to measure campaign results more accurately and therefore make better business decisions. Without this type of analysis you may deem a successful campaign to be a failure and equally importantly, you may deem a failure to be a success.

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