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In this video we'll look at what metrics are used for and talk about how to pick a good metric.
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It's normal to do a bit of data discovery when you get a new data set.
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But usually, the data analysis process starts in management.
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Leaders of the company have goals for where they like the company to be.
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And to make sure they hit those goals, leaders keep track of various variables.
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For example, among other things, a manufacturing company would probably keep
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track of expenses, defect rates and employee hours.
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And they probably track these things over time.
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That way it's easy to see how things are changing and measure performance.
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When you use a variable to measure something, it turns into a metric.
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So if the company has a goal to cut costs,
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expenses might be a good metric to keep track of.
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The metrics are always so generic.
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And they differ from company to company.
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After this video, maybe take a minute to look up some metrics for your industry.
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It's always interesting to see what's being tracked.
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Another thing to keep in mind is how you choose the metrics.
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To help you pick the right metrics, here's four things you'll want to keep in mind.
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One, measurability.
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If you can't measure it, you can't use it.
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Let's look at the example of a movie theater.
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Knowing how frequently people watch movies at home
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could be really useful information.
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But that's just not something we can measure.
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At least not reliably.
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Two, actionability.
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We should be able to impact the metric.
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If we find that people are more likely to see movies when it's cold outside,
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it's certainly interesting.
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There's not a lot we can do to change the weather.
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Three, easy to understand.
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Our metrics need to be fairly simple.
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If you wanted to use the ratio of daily popcorn sales to employee hours worked
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as a metric, you'd better have a really good reason.
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Four, goal-oriented.
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When you are choosing metrics, keeping in mind the goal you are trying to achieve.
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If the movie theater's are trying to raise popcorn sales,
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it doesn't make a lot of sense to track how someone paid for their ticket.
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Once you have chosen your metric, it's time to start calculating it.
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Sometimes this is easy, but other times it can be tricky.
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Let's look at an example where we own two movie theaters and
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we're tracking what percentage of our revenue is made up by popcorn sales.
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Let's say theater one's revenue is 20% popcorn and theater two's is 60% popcorn.
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One way we could combine these would be to take the average.
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So overall, 40% of our revenue is made up by popcorn sales.
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But wait a minute, theater one brings in four times as much revenue as theater two.
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So if we add up the raw revenue numbers,
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it looks like popcorn sales makes up 28% of our revenue, not 40%.
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When you're working with calculated rates, you wanna make sure that you're not
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skewing the result due to different sample sizes.
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Also, when you're comparing your data, you wanna make sure that all points are valid.
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If theater one's popcorn machine was broken all last month,
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then it probably doesn't make sense to include last month in our calculations.
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Once you've calculated your metric, you'll want to check to see how it's performing.
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Here, the key is to establish a good baseline.
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If we're trying to increase monthly revenues,
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a good baseline might be the average revenue from last year.
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Though you'll want to be careful of seasonality.
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Metrics tend to vary based on the time of the year.
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For example, toy stores have a lot more revenue in December than they do in May.
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Another term you'll need to be aware of is key performance indicator or KPI.
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Key performance indicators are metrics used to make sure the company is executing
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its plan.
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A good example of a key performance indicator,
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would be something like attendance figures for a movie theater.
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If we had a goal of raising revenues, tracking attendance
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figures would be a good way to let us know if we're on the right track.
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Put another way,
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attendance figures are key to knowing how the theater is performing.
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There's a lot that goes in to choosing and calculating a good metric.
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But by following these simple tips, you should be able to nail it every time.
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