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Metrics

What gets measured gets improved

Every metric has to exist for a good reason.

Worst first: time and money is clearly being wasted.

For each documented process, what decision workflow will be triggered if a metric is at or below a what threshold.

The information for these reports need to be seen ASAP.

  • losing money
  • losing clients
  • failing to comply with regulations
  • security failures

Closed Loop Systems

If you don't measure it you can't improve it.

The purpose of measuring the performance of anything is to indicate where decisions need to be made.

MetricResultThresholdDecision Workflow
Future BookingsFailure< 40%Paid Advertising
CACFailure$200/customerChannel Review
Provider SaturationSuccess> 80%Promotion/Bonus Analysis

Primary

Fundamental measures of performance.

Network Effects

North Star Metrics

Evolve north star metrics that help to focus intention and attention.

Broad categorisation:

  • Revenue (e.g. ARR, GMV)
  • Customer growth (e.g. paid users, marketshare)
  • Consumption growth (e.g. messages sent, nights booked)
  • Engagement growth (e.g. MAU, DAU)
  • Growth efficiency (e.g. LTV/CAC, margins)
  • User experience (e.g. NPS)

Strategic Review

Analysis of good news for strategic review in six week cycles that relate to projects that implement tactical experiments to achieve the overarching strategic objectives that are aligned with an organisation's vision and mission.

Take care of the bad news and the good news will take care of itself.

Outcomes and Decisions

Measuring the performance of a Role, Product or Service should indicate where decisions need to be made.

MetricResultThresholdDecision Workflow
Future BookingsFailure< 40%Paid Advertising
CACFailure$200/customerChannel Review
Provider SaturationSuccess> 80%Promotion/Bonus Analysis

When setting thresholds some numbers are important to be aware of.

Tactics

Failure DecisionsSuccess Decisions
Better training?How much more to reinvest?
Wrong tactics?Adjacent expansion?
Wrong strategy?Take on more complex/riskier bet?
Cancel the experiment?Scale recruitment?
Cancel contract?
Cancel role?

Investing

MetricTargetBenchmark Source
ROE: 5-year Avg.>= 17%
Return on Invested Capital: 5-year Avg.>= 17%
Pre-tax profit Margin: 5-year Avg.>= 1.2
Industry Avg. Pretax Margin: 5-year Avg
Price/cash flow ratio <= 0.8Industry Average price/cash flow ratio
Price/cash flow ratio >=0.1
Debt to Equity Ratio <= 0.8Industry Average Debt to Equity Ratio
Income per employee >= 1.1Industry Average Income per employee

Categories

For a piece of information to be desirable, it has to satisfy two criteria:
it has to be important,
and it has to be knowable. - Warren Buffett