Treating performance metrics as an equivalent of business strategy or at least an important factor in shaping it has become normal in the last 30-40 years. Strategy has a reputation of being elusive while numbers bring it down to earth. Spreadsheet can be understood and everything, including people’s value, can be measured. The problem with that approach is simple. If done right, it can tell you what to do, but never how and most importantly – why.

Strategy is the blueprint for building a house, while data is wood, concrete, and everything in between. You can build almost anything you want with it but try and make a building capable of withstanding a serious storm or a hurricane.

What and what for

Metrics are essential to measure progress and check if the project or organization itself goes in the right direction. Losing the sight of why you’re doing the project in the first place undermines the very reason data exists. Data shows us how good the strategy is and how well team performs, that’s it.  Marketing strategy and vision, on the other hand, provides reasoning and context.

What are the best situations to even use metrics? It helps achieve marketing campaigns’ goals, it provides information on how well software development team is running things. It can also be valuable for human resources.

These are the key benefits of tracking business metrics that really matter: identifying bottlenecks, performance improvement, comparative analysis, compliance, communication of ideas, alignment on goals.

All that glitters is not gold

There are two kinds of data: gold nuggets and iron pyrite (fool’s gold). In other words: valuable base for conclusions and vanity metrics. The first is self-explanatory, let’s focus on the other one. Some companies are interested in how many followers they have on social media, how many clicks, how many shares can generate a single post, etc. Is it really that important?

Here come the “favorite” words of many managers: it depends. Does your company depend on B2C traffic and organic search? Are you trying to grow a community around your products? Do you heavily depend on traffic that create buzz? Because if not, if you’re goal is to build an image known for thought leadership and your social media channels act like a modern phone book, then you can relax. 

Let me be clear: yes, every single like, share and comment counts. Every platform has algorithms after all. But I would take 10 leads and one signed contract for every 100 post displays or interactions over a 1000 likes, shares and other form of impressions, with only one lead. Ergo: social media metrics can be crucial for some, but others can almost skip them. It’s better to laser focus on attracting the right traffic than measure artificial factors for report that will land on the Growth Hacker’s desk.

What software development metrics should you use?

Let’s start with an easy one. In the world of software development, there are three main areas to think about: the development stage, maintenance stage and satisfaction assessment stage. Each one holds useful tools.

  • The development stage. Here we have velocity (increment produced during a sprint), sprint burnout (work within the timeline of the project), release burnout (if a product is ready for launch), work in progress (tasks, tickets, etc.), flow efficiency (active and passive tasks).
  • Maintenance stage. It holds deployment frequency (pivot periods, etc), time for changes (time needed to commit a new chunk of code), change failure rates (team’s deployment efficiency). We also have reliability, availability, serviceability (RAS) – how does the software hold up against specifications, and service restore time (self-explanatory).
  • Satisfaction assessment stage. We have the true test coverage (codebase vs types of tests coverage – integration, automation, unit, etc), Employee Net Promoter Score (eNPS) for assessing team’s morale, and finally Net Promoter Score (NPS) for measuring chances the end user will recommend a product to other people. 

Which business metrics are important?

There is no shortage of these ones, so let’s focus on those that are keys to success and can’t be replaced by buzzwords popping out from time to time. 

  • Net sales revenue. An average revenue generated per user or customer, revenue by product or product line, revenue by territory or market and revenue generated per sales representative.
  • Growth rate. One of the most important indicators of your organization’s overall condition. It’s good to compare yourself to the industry and measure how your company is doing against competition.
  • Churn rate. The percentage of customers who cancel or don’t renew their contracts or subscriptions for your services or products.
  • Return on marketing investment (ROMI). This is a tricky one. It generally crosses the line between sales and marketing and is, or should be, dispersed into both of them. Simply put – it’s a profit generated by the marketing department. In reality, it’s a profit that should be generated by everyone in the company – including HR Business Partners (more on that in a second).
  • Cost per lead (CPL). It’s about a cost of identifying, bringing on board, qualifying and retaining a customer. It’s important for an appropriate budget allocation. 
  • Customer acquisition cost (CAC). It’s about figuring out how much do you spend on turning an interested prospect into a paying customer.
  • Customer lifetime value (CLV). It’s your profit generated by a customer across the time he or she is your customer. In this case it’s better to measure an average value of all your customers or at least some groups, rather than breaking digits individually.
  • Conversion rate. It measures a percentage of users that completed an important action like clicking on a button, sending a business inquiry via online form, downloaded a whitepaper, started a trial period.
  • Customer retention. It’s a number showing you how costly it is to attract new customers. It also shows you how much efforts should you put into keeping client you already have (by investing in a Customer Success department, for example).

We also have net profit margin, gross profit margin, monthly recurring revenue (MRR), customer engagement score, and all kinds of different factors that nerds love to hug during business hours. Seriously, though: they are worth nothing without one simple thing: engagement.

Enter Management 3.0 and Human Resources 3.0

These two are two pieces of a pie. HR 3.0 is a fragment of Management 3.0. In a nutshell, it’s about energizing people, empowering them to achieve unprecedented results, aligning goals, development of high-level competencies, and incorporating a growth structure. More or less, it’s making sure that Wolverine gets his adamantium skeleton, so he can rip of competition.

After painting this lovely view, let’s focus on why it should matter. 2023 is still a year of a Great Resignation in US. Europe starts to feel it. Companies will undeniably switch to quiet hiring. Meaning more work for already hired. Meaning more frozen recruitment processes. Meaning tight grip over data and less thinking about “frivolous” things like marketing and sales strategy, company’s vision and mission.

And that would be a mistake. Why people are leaving en masse? Because they can’t see a light in the tunnel. Because none of the metrics above translate into work satisfaction. Because customer satisfaction rates are overshadowed by project-related numbers; profit being the most important ones. Especially now, in times of global recession.

In reality – profit is a side product of what you do and why in the first place. Let’s go back to a golden circle created by Simon Sinek. There is a heavy mental tendency to put aside or even replace strategy with metrics. They will not tell you why people are leaving. Both employees and customers. They will not tell you what is important to them or how can you get them back.

All they can do is show you how much you are missing out and losing by prioritizing spreadsheet over company’s slogan that is usually put in an entrance, over the reception desk.

In time of turmoil, let’s focus on what really bring food on the table: people and their value for the company. There’s a European comic book called Human stock exchange, where people are measured by their worth, literally. And reduces to numbers, because they constantly perform under the tyranny of the metrics. Let’s make sure it’s a warning, not a manual.