More data is always a good thing right? More data means more information and more accurate decisions. More data means we’ll be able to build our business faster.
Wrong. Completely and utterly wrong.
Not all data is helpful. Some of it is worse than worthless because it tricks us into believing we have answers when we don’t. But when you focus on data that helps you make decisions, everything else in your business gets easier.
How to Tell if Your Data Matters
It all comes down to one thing: does the metric help you make decisions? When you see the metric, do you know what you need to do?
If you don’t, you’re probably looking at a vanity metric.
Vanity metrics are all those data points that make us feel good if they go up but don’t help us make decisions. Let’s say your visits look like the graph below. What should you do to help grow your business?
There’s no way to know. Traffic spikes twice towards the end of the graph but what does that mean? Absolutely nothing. Maybe some blogger mentioned the site. Or maybe a blog post went viral. The marketing campaigns could be driving the traffic. We have no idea. We don’t even know where to start. Not only do we have to figure out why visits went up, then we have to figure out if those visits actually helped our business.
Let’s look at an actionable metric. What does this conversion rate tell us?
It says “HOLY SNACK ATTACK BATMAN! WE HAVE A SERIOUS PROBLEM!” Conversion rates plummeted for some unknown reason. We know immediately that we need to take action and figure out if the report is broken or if people can’t convert.
So we check our merchant account and see if payments are still coming in. If not, we send out the bat signal, get our developer on the phone, and find out what’s wrong with our checkout funnel. Then we fix it.
Notice how there’s no confusion and no ambiguity. Only action. The data quickly told us what to pay attention to so we know immediately how to focus our efforts to improve the situation.
“But Lars! Things like this don’t usually happen you silly goose!” Sure they do. And even when they don’t, actionable metrics still tell us how we’re doing.
Have you revamped your site design or checkout funnel in the last 12 months? Did you compare your conversion rates before and after? If you did, they would have told you whether or not the project was a success. If your conversion rates remained constant, you know that you wasted your time. You’ve learned that you need to go in a different direction to improve conversion rates and get customers faster. When you have actionable metrics, you can make decisions constantly. And each decision will help your business get to the next level.
Whenever you start tracking a metric ask yourself if it helps you take action and make decisions. If not, ditch it.
At their core, actionable metrics are geared to answer these questions:
- How do you gain or lose revenue?
- How do you gain or lose customers?
- What are the key functions and benefits that people are coming to you for?
Above all else, you need to track where your revenue is coming from. Each and every time someone pays you, it needs to get tracked. This includes all these juicy metrics:
- Lifetime Value
- Total Revenue (Month, Quarter, Annual)
- Net Profit
- Average Order Value
- Number of Transactions
- Average Length of Subscription (for subscription business models)
Leads and Customers
Where do your leads and customers come from? Social Media? Google? Paid traffic? You need to find out.
This is not the same as finding out where your visitors come from, that’s a vanity metric. Since your customers represent a small portion of your visitors, they’ll get lost in the data.
So stop focusing on your visitors as a whole, you need to discover where your customers come from. This tells you where to spend your energy and marketing dollars.
But be careful, most analytics providers attribute conversions to the most recent traffic source. So if someone finds you with an AdWords ad and then googles your business name before they convert, the branded keyword gets the credit. Most analytics tools are starting to track assisted conversions. These show you which traffic sources bring high quality prospects to you and which traffic sources bring them through the finish line.
Site-wide conversion rate is a start but there’s so much more to conversion rates. Track the conversion rates of your traffic sources, primary keywords, and marketing campaigns.
And don’t compare yourself to the industry or your competitors. Your goal is to establish an internal benchmark. Then try to beat it. When you move the needle up, you’re on the right track. Otherwise, you’re either going backwards or your efforts aren’t making any impact.
There’s going to be some overlap with conversion rates and your leads/customers. One of your top priorities is to track the conversion rate of prospects to leads, and leads to customers. When someone comes to your site, they’re a prospect. When they give you their email, fill out a contact form, create a trial account, or add a product to their cart, then they become a lead. When they give you their credit card, they become a customer. Track the conversion rates at each step.
A/B (Split) Test Results
You’ve heard it before and I’ll say it again: TEST, TEST, TEST. But you can’t just test randomly.
Everyone says you should “throw paint at the wall to see what sticks.” That’s a terrible idea. Because you haven’t built a system that will tell you which paint did the sticking. So separate everything into different colors (split tests and analytics), THEN start throwing.
Sections of your site and marketing might be highly defined. Like an ecommerce checkout process, your visitors are forced to follow a series of steps before they convert. Other examples include email signup processes and webinars.
When you have a funnel that people follow before converting, you need to track each step. This tells you where your funnel breaks down. Do your customers abandon the checkout process right before submitting payment? Or do they never get past the cart page? Knowing where people bail tells you exactly what you need to work on.
Different groups of customers behave completely differently. Do you know what separates your most profitable customers (they come back month after month) from the customers that buy once and never return? To understand how these groups behave, you need to use cohorts.
Cohorts separate your customer into groups so you can find trends in the data.
Marketing Campaign Performance
Do your marketing campaigns bring you profit? If not, you need to cancel them right now. Or test new ideas until you force them to work (if they’re not profitable, they’re not working). Either way, you need to know how much profit each campaign brings you.
Take the total revenue of each campaign then subtract the cost of marketing and the cost of goods sold. If you end up with a negative number, you have a problem.
Is Google Analytics Guilty of Vanity Metric Focus?
Look, I use Google Analytics heavily. Every day in fact. I also know how NOT to use it. I rarely look at the main traffic reports and spend all of my time focusing on conversions, trying to piece together the behavior of my customers.
When we log into Google Analytics, we get a data puke of vanity metrics. On the Visitors Overview report, there isn’t ONE number that you should actually care about.
Your goal should be to click into a better report before Visitors Overview even has a chance to load.
Not only do you need to ignore the vast majority of data in Google Analytics, you also need to know how to customize it so it tracks your business outcomes. Most people will never do this.
You need to enable ecommerce tracking, define goals, and calculate goal values so you have actionable metrics to work with. Using the default setup of Google Analytics will only give you vanity metrics.
But we can’t really fault Google for this. After all, they’re giving us what we want: data that makes us feel good. When visitors go up, we’re happy. And it’s not hard to get visitors to go up. The real trick is convincing visitors to become customers. Many times, we neglect the responsibility of growing our business in favor of metrics that are much easier to improve but don’t matter. Pageviews, visitors, fans, and followers will only distract you from the real task at hand.
How Most People Pick Their Metrics
When some people pick the key metrics they want to track (also known as key performance indicators or KPIs), the first thing they do is log into Google Analytics and figure out what’s easily accessible. Then you get a decision process like this:
- Log into Google Analytics
- See all the fancy graphs and numbers
- Pick a few that sound nice (pages/visit, visitors, and time on site usually make the list)
- Report these numbers to the boss and use them to evaluate your own marketing performance
Now you’re stuck with numbers that don’t mean anything. And your salary is now based on them.
Pro-Tip for Terrible Business: For those of you that are judged on how many pageviews your site gets each month, here’s a quick tip on how to impress your boss. Make your navigation super complicated. Your visitors won’t be able to find what they’re looking for and they’ll click all over your site. You’ll crush your quarterly pageview goals and impress everyone in the office. But is this good business? Absolutely not. So stop tracking pageviews.
How You NEED to Pick Your Metrics
Start from the opposite direction. Don’t even look at Google Analytics or any other tool. Start with your business.
- Pick 1-5 metrics that tell you how healthy your business is. This will include things like revenue, number of leads, account signups, and lifetime value.
- Figure out how to force your analytics tools to get you as close as possible to these metrics. If you have to import and merge data into Excel, do it.
Once you’ve built a process for tracking the health of your business (not the health of your website), then you can focus on other metrics like:
- A/B test results
- Newsletter subscribers
- Conversion rates
- Cohort reports
Is There a Tool that Helps Us Track All This?
We built KISSmetrics from the ground up to focus on the key metrics that show you how to grow your business. Everything in KISSmetrics is actionable. And since it’s so simple to use, you’ll be finding juicy insights within your first week. We’d love to show you what KISSmetrics can do.
We only have so much time in the day. Every minute counts so don’t waste any looking at metrics that don’t help you. Focus on metrics that matter and ditch the vanity metrics.
Don’t track these metrics (these are the vainest of all metrics):
- Time on site
Instead, track these metrics:
- Conversion Rates
- A/B Tests
- Marketing Campaigns
And if you really want to get good data, go talk to a customer. Find out why they bought from you and how they found out about you. Ask them to show you how they use your product or service. WARNING! This entails actually talking to a human being. I know, it’s scary. But business is fundamentally about building relationships so reach out to your customers. You’ll get better data in 5 minutes than you will from 5 months of only looking at reports.
With actionable metrics, you’ll know exactly what questions you should be asking. Why were they hesitant to buy after adding the product to their shopping cart? Why did they cancel their account after only a week?
All of this gives you a deep understanding of customer behavior, which is what it’s all about. When we truly understand our customer, we can delight them at every step and build our business faster than we could have imagined.
What actionable metrics are essential to your business?
About the Author:
Lars Lofgren is the KISSmetrics Marketing Analyst and has his Google Analytics Individual Qualification (he’s certified). Learn how to grow your business at his marketing blog or follow him on Twitter @larslofgren.