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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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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
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