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Indebta > Small Business > The Synergy Of Hard And Soft Metrics In Decision-Making
Small Business

The Synergy Of Hard And Soft Metrics In Decision-Making

News Room
Last updated: 2023/10/07 at 3:27 AM
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Jason Miller helps influential brands and celebrities create generational wealth with their businesses | CEO, Strategic Advisor Board.

Contents
Hard MetricsSoft Metrics

I attribute my success in business to measuring. As the old adage says, “What gets measured, gets managed, and what gets managed, gets improved.” Most business owners focus solely on hard metrics and skip over soft metrics, but there’s power in both when it comes to revenue. Soft metrics along with hard metrics make for the best decision-making.

Hard metrics are the data and charts you see. Soft metrics are intangible and hard to measure because of causation and correlation. An example of a soft metric would be having a customer on social media say positive things about your company. This may lead to an increase in sales, but it’s unclear if it was specifically from causation or correlation.

Causation happens when there’s one variable that directly impacts change in the second variable. Think of dominoes and how when you push one, it knocks another down. Correlation happens when there’s a relationship between two variables. Let’s say you have a Facebook ad campaign and your sales increase (or decrease). It’s possible the ad increased sales or there could be another reason unrelated to the campaign that caused sales to increase. Therefore, correlation doesn’t necessarily mean causation.

When I first started my business strategy career, I used to focus solely on the hard metrics. I figured if there wasn’t hard data stating what was happening, everything else would be useless. They say numbers don’t lie, but if there’s a correlation, then we can’t solely trust the numbers.

Here are specific metrics you should be paying attention to:

Hard Metrics

Keep in mind that while these are sales metrics, they aren’t just important for your sales team. They’re useful for your marketing team as well and for you to keep tabs on your sales process.

Customer Acquisition Cost (CAC)

This is how much it costs you to acquire a new customer. You should look at everything from sales to marketing. This is a critical metric, and it varies greatly depending on your industry and products.

Customer Acquisition Cost = (Cost of marketing + Cost of sales) ÷ Number of new customers acquired

Customer Lifetime Value (LTV) To CAC Ratio

Customer lifetime value is the amount of money your average client brings in. This goes hand in hand with your CAC because although each industry and business will have its own sensical numbers, the rough ratio of LTV:CAC should be 3 or higher, which would mean you’re making three times the profit. Here’s how to calculate it:

LTV:CAC = Lifetime Value ÷ CAC

Sales Conversion Rate

This measures how effective your salespeople are at turning prospects into clients. Note that conversion rates will vary across industries and businesses. One study found that the average conversion rate across 14 common industries was 2.9% with it going as high as 4.6% for professional services.

Sales Conversion Rate = (Number of prospects converted ÷ Total number of prospects) x 100

Sales Pipeline Value

Knowing your sales pipeline value will help you both predict and prepare for future sales. It refers to the potential revenue you could have based on how many prospects your salespeople can close. You want to look at how many prospects you have and how much each prospect usually brings in. This is an important formula to know:

Sales Pipeline Value = (Total number of deals x Average deal size in dollars)

Soft Metrics

Remember, soft metrics are just as important, but they’re also easy to forget about in the business world when you’re used to looking at graphs and concrete data. Be sure to measure the following as well.

Share Of Voice (SOV)

This is where your company lands in the marketplace according to various factors such as social media mentions and shares, website ranking and pay-per-click ads. You want to do competitor research as well, including keywords, to see where you land compared to your competitors. Share of voice can be calculated as:

SOV = (Your total brand metrics ÷ Total industry metrics) x 100

Personalization

Your clients are constantly telling you what they want, but are you listening to them? Personalization isn’t only necessary for a great client experience but also expected. According to McKinsey, 71% of clients expect personalization during their interactions with a company.

There isn’t necessarily a formula for this, as it’s a harder one to calculate, but you want to look at all of the different options you provide for your clients. For example, when they visit your website, do you have an option to change the language or is there a customer portal they can sign in to and customize their wishlist? Pay attention to all of the nuances and the client journey in order to give your customers the personalization they desire.

Employee Satisfaction

This is one of the most important soft metrics. At my company, Strategic Advisor Board, we keep an eye on our sales teams to make sure they’re satisfied in their roles and that they’re not too bored or overworked. You can get a read on their sentiment with a survey and then turn it into a percentage with this formula:

Employee Satisfaction = (Number of employees who ranked their satisfaction high ÷ Total responses) x 100

As a bonus point, you can find out your customer satisfaction rate as well using the same concept.

Using both hard metrics and soft metrics you’ll be able to make better financial decisions for your company. By focusing on both metrics your business will have greater potential for growth.

If you always keep this statement top of mind, it will keep you on track: “What gets measured, gets managed, and what gets managed, gets improved.”

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

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News Room October 7, 2023 October 7, 2023
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