A thing or two about vanity metrics

Source: The FoodGroup

Vanity metrics mean or measure nothing. Well except to stoke ego or to hide a problem.

Whilst saying your startup moved goods worth US$ 6Billion in the first quarter of 2020, doesn’t say much – except if your shareholders have invested in ‘goods movement ‘ and not in a business. Saying how much you made from moving that volume of goods is perhaps the real metric and most of interest to your investors and to your bottomline.

In addition, your investors, if they have invested in a business, will be more likely than not be interested in knowing the cost of moving the those goods (cost of sale), total revenue (sales), and total earnings before  interests (if you took a loan to finance any part of the sale or your operation) taxes, depreciation and amortisation (EBITDA).

You may use the volume of goods to illustrate how efficient your operation is, but that is where the relevance of the volume of goods moved ends – so on its own, it means nothing, but in the context of other metrics, may mean something. So presenting that metric on its own, is at best mere fantasy.

Your stakeholders and even you should be interested in knowing how your business performed against the industry you operate in.  Some of the key questions would be:

  • are you spending more money per kilogram of goods moved?
  • are you returning more or less for every cent in investor equity as your peers in the industry (return on equity – ROE), are you maximising or not the assets deployed (asset turnover ratio), and
  • of course the investor will calculate the the price of their equity in your business to your earnings ration (PE ratio).

All of these done continuously helps the investor and you hold yourself and the business you run accountable.

Having said that, what one metric really tells you how you business is doing? What vanity numbers are you taking joy in?

For me, running a facebook promotion (an operation and not really a business) I needed to get 50 people to fill a form.  Facebook reported after three or four days of the promotion that we reached 13K people, we have had 138 engagements (likes, shares, comments and link clicks).

But guess what, we had zero form completions.

Figure 1 – Snap report of an ongoing facebook promotion

I’d be right to tout those numbers, and hide the fact that I haven’t achieved the goals I set out to achieve.  But guess what, that is not good enough, and I have had the promotion paused, whilst I investigate if the non form completion can be fixed in other ways. Yes, that is what an executive should do when the numbers indicate a problem. S/he shouldn’t tout the seemingly positive but meaningless number as volume of goods moved, except that executive is a truck – the truck that moved those goods.

 

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