iSixSigma

Business Metric

Definition of Business Metric:

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There are all types of business metrics. Some examples would be sales revenue, customer retention rate, and net profit. Each of these and others helps provide you with a fuller picture of how your business is doing.

Overview: What are business metrics?

Business metrics are metrics that are quantifiable and utilized to assess the performance or status of a business function.

4 benefits of business metrics

Here are some clear benefits that come with the use of business metrics:

1. Business metrics make expectations related to performance clear

One benefit of business metrics is that they help everyone on a team understand the expectations behind their individual performance as well as for the organization as a whole.

2. Business metrics allow for fact-based management

Using the right business metrics allows management to oversee work and their employees to be armed with facts instead of feelings. This allows for a much more objective approach.

3. Business metrics provide focus

There can be many factors involved in a day’s work, so it can be difficult for someone to know exactly where to put their focus. Business metrics help provide the tools for showing someone exactly where their energy should be directed.

4. Business metrics provide consistency

By having your business metrics up-to-speed, you are more assured of having consistent results of performance, giving you more repeatability and reliability.

Why are business metrics important to understand?

Business metrics are important to understand for the following reasons:

Success/Failure of Processes – Understanding business metrics is important since it will give you much-needed insight into the success/failure of your business processes.

Cost tracking – With an understanding of business metrics, you are better able to track exactly where the money is going, to what end, and how justified that spending is.

Decision-making – It is important to have an understanding of business metrics so that you can make better-informed decisions about your business.

An industry example of a business metric

The marketing department of a toy company launches an advertisement to social media that is directed toward parents of toddlers. With business metrics, the marketing department is able to determine how many people see the advertisement in their social media feeds, watch the advertisement, comment on the advertisement, click on the link that it directs to, and then ultimately make a purchase.

3 best practices when thinking about business metrics

Here are a few key practices to keep in mind when it comes to business metrics:

1. Make sure your business metrics are relevant

There are so many business metric options to choose from. Be sure to only use those that are truly relevant to your situation and needs.

2. Do not be afraid of overlap

You may have some business metrics that are specifically targeted to one department or some that overlap among several or all.

3. Conduct your business metrics at regular intervals

It is a necessary practice to conduct your business metrics at regular intervals in order to keep track of progress. Don’t let too much time pass before doing them again, but also do not do them so frequently as to make them redundant. The appropriate time frequency of your business metrics is dependent on the type of data.

Frequently Asked Questions (FAQ) about business metrics:

What are some other types of business metrics?

Some business metrics are perception metrics, outcome metrics, and interaction metrics.

What are the differences between a business metric and a KPI?

KPI stands for Key Performance Indicator, and it is a more focused type of business metric that targets specific departments with a clear goal in mind. Some business metrics may not necessarily be geared specifically towards a set goal of the business, but KPIs always are. KPIs are always measured against a benchmark, while business metrics can sometimes be measured more passively. KPIs also focus on standards that are paramount to the business, while some business metrics may not be.

Who decides on which business metrics to use?

This may be decided upon by the stakeholders or members at various levels within the company.

The Necessity of Business Metrics

If you have a company that is taking its business seriously, business metrics are practically a necessity. They are important for gauging the performance of pretty much every aspect of your organization. By using these tools, you are able to get a much better idea of where your company is as well as where it is headed.

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