Metrics – Why We Need To Include the Denominator

In addition to earlier posts, here’s a simple idea:  make sure to include an appropriate (or more complete) denominator in measurements.  A richer denominator enables you to measure effectiveness; the numerator only measures activity.

The example I love to use is to compare: 

“Demos Completed per Quarter”:  Measures activity only (and often results in a negative spiral of “we need more demos so that we have enough pipeline to meet our numbers…”).

Vs.

“Demos Completed per Quarter per $ of Revenue”:  measures the effectiveness of the team’s demos in securing business.

Expanding on this:

“Demos Completed per Quarter per $ of Revenue on a per-salesperson basis”:  measures the effectiveness of individual sales people in the use of demos in their sales opportunities.  This does assume that other variables are largely independent, which may or may not be true.  There may need to be some level of normalization done to be able to compare sales people’s performance (e.g., quota size, average order size, etc.).

Similarly:

“Demos Completed per Quarter per $ of Revenue on a per-presales-person basis”:  measures the effectiveness of individual presales people in the execution of demos.  Again, this also assumes that other variables are largely independent.  Similarly, normalization may need to be done to compare presales people’s performance (e.g., was discovery done adequately, quota size, average order size, etc.).

Tracking these kinds of metrics over time provides managers (and individuals) with tools to coach and tune the overall organization’s effectiveness, on an individual-by-individual, region-by-region, or overall team basis.