This article is the final piece in a four-part series on the digital superfecta: the four things all companies must get right in order to maximize their growth potential. Read on to learn more about the fourth leg of the digital superfecta, and find links at the bottom of the article to the other three legs.
Over the past three weeks, we have looked at three of the four elements you need to successfully grow your digital revenues. We started by considering how you generate qualified leads online. Then we examined what you must do to convert these leads to paying customers. Last week, we dove into product management best practices. This week, we’ll focus on analytics.
Does that word scare you? It shouldn’t. Analytics is why I love the digital world—everything you do is measurable! Using analytics gives you a license to fail! Why? Because you can run an experiment, measure the results, analyze what worked and what didn’t, course correct, then try again. It’s a virtuous cycle.
In this article, we’ll describe a very simple, practical way to use analytics to drive your business. It comes down to a seven-step process.
1. Define Your Business Model
Any good business strategy starts with a definition of your business model. How can you possibly measure your results if you don’t know what business you’re in and how it works? I highly recommend buying and reading Business Model Analysis for the Entrepreneur to get a good framework for building your business model. It’s a low-cost investment in your organization’s future growth.
In the article, Richard Hammermesh, Paul Marshall, and Taz Pirmohamed describe a process for building a fishbone diagram of your business model, designed to methodically break down all the drivers of your business. For example, here is a fishbone for The Grateful Dead:
You see that the band’s total revenue comes from three main drivers: albums, merchandise, and concerts. Within each of those broad categories are the factors that affect the amount of revenue generated through each driver. For example, concert revenue depends on the number of concerts they play, and the revenue generated from each concert (which is in turn dependent on the number of tickets sold and price per ticket).
When you can get granular about the revenue drivers for your business, you can hone in on the areas that are most consequential to your growth.
2. Determine Points of Greatest Leverage and Greatest Risk in Your Model
Look at your fishbone and decide where there is the most leverage. This is where you can make a small improvement that results in a large increase in total revenue. Then, look for areas of concern: Where are you not sure you’ll do well? Or where is there a large chance of failure? What keeps you up at night?
This step provides you with a list of the most important metrics to track—let’s call the items on this list your Key Performance Indicators (KPIs). Winnow your list down to between five and nine items. Anything more than that, and you’ll lose yourself in numbers that don’t matter and miss important warning signs from the KPIs that do count.
3. Set Goals for Each KPI
For each KPI, set a desired outcome. You can base the target on growth over historical performance, benchmarks from similar companies, or even visionary aspirations.
Make sure that these goals are specific. Don’t just say you want to see an increase in conversions; define the percentage increase you’d like to see.
4. Set Up a Dashboard to Measure Each KPI
Figure out how to measure each of your five to nine KPIs. If one or more of the KPIs you’ve selected is not measurable, consider finding a proxy.
For example, if you want to measure the number of people who buy something per live event, but for some reason that is not tracked, use something like number of items sold per live event. Get creative.
Once you’ve settled on the numbers you’re going to track, set up a dashboard to house all of this information in one centralized location, where it will be easy for your team to review.
5. Start Tracking and Review Regularly
Now that the pieces are all in place, there’s only one thing left for you to do: Start tracking your results!
Depending on how rapidly your business moves, review your dashboard daily, weekly, or at least monthly. Get a good feel for your numbers. After a few weeks you should know the key metrics off the top of your head.
6. Get Curious About Variances
I hate to break it to you, but you will probably be wrong about every single target. On some you will do better, some you will do worse. Explore both the areas where you exceeded expectations and those where you missed your goal.
It’s helpful to have an analyst who can slice and dice the data for you. For example, if total email sign ups is above target, you might want to analyze that number by source—how many email names came from social versus organic search versus paid search? Understanding where your email sign ups came from can help inform your next moves.
7. Make Changes, Then Return to Step Five
Based on what you learned from the variances in step six, it’s time for you to make some changes. Returning to the email sign-up example, if you found that the most successful channel was paid search, you might decide to double down and spend more on that fruitful channel to further grow your email list.
Once you’ve made those changes, loop back to the fifth step and start tracking and measuring again. Hopefully, the changes you made will result in a positive change in your numbers. If they don’t, it’s back to the drawing board to test another theory! And if they do, is there a way you can refine your approach even further?
This cycle of developing a hypothesis, measuring results, and testing new approaches should continue throughout the year, and with each new iteration, you’ll get closer and closer to finding the best way to do things.
Two or three times per year, it’s good practice to go all the way back to step one and make sure you’re still measuring the right things and have the right targets. As your business evolves and your model changes, it might not make sense to measure those same KPIs you started out with. Going back to the first step gives you the opportunity to identify the metrics that will best serve your continuing organic growth.
If you’d like to learn more about the digital superfecta, check out Leg 1: Qualified Lead Generation, Leg 2: Three E-Commerce Conversion Gaffes, and Leg 3: The Product Management 10 Question Challenge.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.