Confusion About Metrics

I recently read an article from someone I respect, “Revenue Is Not A Metric.”  To be honest, I was confused–as I read the article, there was some clarification–“revenue is a result….”

As I usually do, when I see something that’s a little confusing, I go to the dictionary to see if I may possibly misunderstand the way a term is being used.  I went to Wikipedia to read up on performance metrics:

“Developing performance metrics usually follows a process of:

1.  Establishing critical processes/customer requirements

2.  Identifying specific, quantifiable outputs of work

3.  Establishing targets against which results can be scored”

As much as I can figure out, Revenue is a metric.  Revenue is an output of what sales people do, it establishes a target against which results can be scored.

I think, however, revenue is not the most meaningful metrics against which we manage and drive performance (at least in complex/long cycle sales).  Too many corporate and sales executives use revenue as the key performance management metric for sales.  There’s no doubt it’s important and we need to be held accountable for producing those outcomes/results.

The challenge, as we know, is revenue is a trailing metric.  That is, it measures the end result of our efforts, so that by the time we are reporting on revenue and whether we have met our goals, it’s too late to do anything about it–at least for that week, month, quarter, year.

We need to look at the appropriate balance of metrics–leading metrics that show we are on the right path to achieving the desired outcomes/results, and trailing metrics–those that show our attainment of the results.

I like to look at 4 categories of metrics:  Business Management, Strategic/Customer/Territory, Operational, Personal Development.  They are tied together, providing leading metrics and some of the traditional trailing measures.

Here’s a quick overview:

Business Management Metrics:  These are some of the more traditional goals and measures, Revenue, Orders, Growth, Gross Margin, Customer Satisfaction.  Most of these are trailing measures–by the time we know our attainment against a target, it’s probably too late to do anything about them.

Strategic/Customer/Territory Metrics can be both trailing and leading metrics.  Sales needs to execute the corporate strategies.  Having these metrics in place helps assure the things sales does are aligned with the overall priorities of the organization.  These may include product line, market segment, customer retention, customer acquisition, and share goals.

Operational Metrics:  These are the measures that tell us whether the things we are doing today are the things that produce the right levels of revenue or other measures we’ve discussed in the prior two categories. In this category, pipeline metrics are those we are most familiar with.  Ideally, our pipeline goals align with the business management and strategic goals we have established.  Other operational metrics may be activity related, prospecting calls per week, customer meetings per week, proposals completed per month, and so forth.

Personal Development Metrics:  These focus on assuring our people have the skills and capabilities to achieve their goals in each area.  They may include training goals, certifications in certain areas, experiential goals, and others.

All these measures should be related to each other.  Typically, we may start at the end–for example with our business management goals and measures, working backwards, establishing the leading metrics and goals that produce the outcomes needed.  As we execute, we track our performance against those goals.  Pipelines with inadequate volume or flow will eventually show up as revenue misses.  But we can see those pipeline challenges sooner (in close to real time), correct the situation, giving us greater assurance of achieving our revenue measures.

We can’t rely on a single measure against we monitor/track performance.  We have to find the small number of interrelated measures, addressing each of the areas identified above.  Collectively, they help maximize our ability to meet our goals.