Purposes of a Metric

In a business environment, metrics are used in a variety of ways. Ultimately, all metrics are used to measure performance over time. A salesperson may track the number of sales or the total sales revenue from month to month. Their manager, at the same time, may be tracking the commissions paid to them. Other metrics, such as operating margins and returns on investment, may also be tracked. These metrics allow the manager to take corrective action over time.

Type of Metrics

 

Raw counts (site visits, revenue)

The most basic type of metric is a simple count of quantities, such as the number of visitors to a website, number of sales made in a particular time, number of pages viewed during a visit to a website, and so on.

Segmented counts within a category

Raw counts can be segmented along various dimensions. For example, the number of visitors can be segmented by gender or other demographics, which gives a better understanding of the types of people that a website attracts. If it can be determined that 75% of your visitors are men, your content can be modified accordingly.

Averages over time (average revenue per month)

Similarly, raw counts can be averaged to show trends over time. For example, average revenues or unique website visits can be calculated for different time periods. If average sales by salespersons can be calculated, it can tell the manager who is performing or underperforming related to the rest of the salesforce.

Ratios (percentage of revenue by product category, average revenue per visit)

Managers may be interested in understanding how different variables relate to each other. For example, a common calculation is a profit margin: What percentage of sales revenue is actually profit for the company? The operating profit divided by the revenue for the company, expressed as a percentage, will indicate the efficiency of the company's operations.

Indices (weighted or unweighted sums of metrics)

A final type of metric is an index, calculated by totaling other types of metrics. Indices are often used when the concept to be measured is a complicated one or a composite of many different subconcepts. For example, marketing theory might indicate that more innovative customers are more likely to shop for a new product or brand. Innovativeness, here, is a complex idea comprised of a number of different psychological factors. To measure such a complex idea, a market researcher might use a number of questions and total the customer's responses to all of them. This will be an index of innovativeness. The Human Development Index (HDI) is often used to measure how developed a country is; it might have questions on everything ranging from infant mortality to adult education to average household incomes to the quality of the environment.