Understanding Metrics

[MUSIC] 0:00 It's normal to do a bit of data discovery when you get a new data set. 0:04 But usually, the data analysis process starts in management. 0:08 Leaders of the company have goals for where they like the company to be. 0:12 And to make sure they hit those goals, leaders keep track of various variables. 0:15 For example, among other things, a manufacturing company would probably keep 0:20 track of expenses, defect rates and employee hours. 0:24 And they probably track these things over time. 0:28 That way it's easy to see how things are changing and measure performance. 0:30 When you use a variable to measure something, it turns into a metric. 0:35 So if the company has a goal to cut costs, 0:39 expenses might be a good metric to keep track of. 0:42 The metrics are always so generic. 0:45 And they differ from company to company. 0:47 After this video, maybe take a minute to look up some metrics for your industry. 0:50 It's always interesting to see what's being tracked. 0:54 Another thing to keep in mind is how you choose the metrics. 0:57 To help you pick the right metrics, here's four things you'll want to keep in mind. 1:00 One, measurability. 1:04 If you can't measure it, you can't use it. 1:07 Let's look at the example of a movie theater. 1:09 Knowing how frequently people watch movies at home 1:12 could be really useful information. 1:14 But that's just not something we can measure. 1:16 At least not reliably. 1:19 Two, actionability. 1:20 We should be able to impact the metric. 1:23 If we find that people are more likely to see movies when it's cold outside, 1:25 it's certainly interesting. 1:29 There's not a lot we can do to change the weather. 1:31 Three, easy to understand. 1:33 Our metrics need to be fairly simple. 1:36 If you wanted to use the ratio of daily popcorn sales to employee hours worked 1:38 as a metric, you'd better have a really good reason. 1:42 Four, goal-oriented. 1:46 When you are choosing metrics, keeping in mind the goal you are trying to achieve. 1:47 If the movie theater's are trying to raise popcorn sales, 1:52 it doesn't make a lot of sense to track how someone paid for their ticket. 1:54 Once you have chosen your metric, it's time to start calculating it. 1:59 Sometimes this is easy, but other times it can be tricky. 2:02 Let's look at an example where we own two movie theaters and 2:07 we're tracking what percentage of our revenue is made up by popcorn sales. 2:10 Let's say theater one's revenue is 20% popcorn and theater two's is 60% popcorn. 2:15 One way we could combine these would be to take the average. 2:21 So overall, 40% of our revenue is made up by popcorn sales. 2:24 But wait a minute, theater one brings in four times as much revenue as theater two. 2:29 So if we add up the raw revenue numbers, 2:34 it looks like popcorn sales makes up 28% of our revenue, not 40%. 2:37 When you're working with calculated rates, you wanna make sure that you're not 2:41 skewing the result due to different sample sizes. 2:46 Also, when you're comparing your data, you wanna make sure that all points are valid. 2:49 If theater one's popcorn machine was broken all last month, 2:54 then it probably doesn't make sense to include last month in our calculations. 2:58 Once you've calculated your metric, you'll want to check to see how it's performing. 3:03 Here, the key is to establish a good baseline. 3:07 If we're trying to increase monthly revenues, 3:10 a good baseline might be the average revenue from last year. 3:12 Though you'll want to be careful of seasonality. 3:16 Metrics tend to vary based on the time of the year. 3:18 For example, toy stores have a lot more revenue in December than they do in May. 3:21 Another term you'll need to be aware of is key performance indicator or KPI. 3:26 Key performance indicators are metrics used to make sure the company is executing 3:31 its plan. 3:36 A good example of a key performance indicator, 3:37 would be something like attendance figures for a movie theater. 3:39 If we had a goal of raising revenues, tracking attendance 3:43 figures would be a good way to let us know if we're on the right track. 3:46 Put another way, 3:49 attendance figures are key to knowing how the theater is performing. 3:50 There's a lot that goes in to choosing and calculating a good metric. 3:55 But by following these simple tips, you should be able to nail it every time. 3:58