Leading Metrics

A couple weeks ago Techcrunch had a post titled, Don't Be Fooled By Vanity Metrics. In it, Eric Schonfeld calls out the difference between what he calls "vanity metrics" and "actionable metrics".

Vanity metrics are things like registered users, downloads and raw page views. These metrics, he says, are easily manipulated and don't necessarily tie to the metrics that really matter. Actionable metrics are the ones that matter. These are things like active users, engagement, revenue, profits, etc. He argues that startups should publish the actionable metrics from the start, instead of trying to fool the press and others with impressive, less meaningful numbers.

I'm always very, very careful about trusting any metrics that come from a startup and are published on a technology blog, vanity or otherwise. Entrepreneurs are very good at stretching or morphing the truth to tell the right story (they're probably not being written about in Techcrunch if they're not good at this). And in an interview with a tech blogger there's little fear of consequences from not telling the truth and big upside from stretching it. That said, if the metrics are accurate and honest, I think both vanity and actionable metrics are critical for any startup to track and manage to.

Instead of vanity and actionable, I've always referred to these metrics as leading and lagging. Leading metrics are indicators that have a strong correlation to more important lagging metrics. The simplest example of this is to apply leading and lagging metrics to a salesperson. For a telemarketer, number of dials is a leading metric for the lagging metric sales. If it takes 50 dials to get a sale, you can track the number of dials a salesperson is making to have a good sense of what sales will look like in a given period. If your salespeople aren't making enough dials or some of them aren't converting at 50:1, then you can make changes quickly. In web startups, leading metrics can be things like: registered users, unique users, emails sent, email response rates. Lagging metrics are closer to $$$ -- things like transactions, revenue driving clicks, number of revenue driving users, and ultimately, revenue.

Determining the right leading metrics to track is critical for any company. It helps management get a sense of how individuals, groups and the company as a whole is performing in real time, allowing for far more intelligent strategic decision making and tactical management.