What is a top-line metric?
Business metrics are used for measuring a specific aspect of the business. For example, for the finance aspect, revenues are a metric. For marketing, the number of website visitors, and for sales, the number of leads. Every business has a lot of metrics, regardless of whether the business actually measures it or not. Business metrics could also be well-defined, such as revenues, but also more fluid, such as the level of satisfaction of the customers. There are ways to measure such metrics, but it is less straightforward than looking at some number from existing business data.
If you try to focus on each of your business metrics, you will find it impossible and have to focus on a few. If you have a few teams, each team can focus on some of the business metrics, but the business owner can't focus on all of them. Business metrics have relations between themself. For example, the spending on specific marketing channels affects the revenues. It also can hurt the net profit if the revenues from that marketing channel are lower than the spending. Another example is the number of leads from a Facebook campaign, which has a ceiling on the number of impressions the campaign gets.
Why top-line metric is important for your small business
Running a business is complicated. Every business, especially small business, has limited resources such as time, money, and expertise, and probably at every given time, you must take care of many things. You can't focus only on one aspect of the business. You can't focus only on sales without taking care of budget, but some aspects are more important than others. The important aspects will be different for the same business at different times. When a business is just started, getting customers is more important than the cost of operation. Without customers, you have no business.
Managing business involves a lot of decision-making. The goal of those decisions is to improve the business numbers. Sometimes, decisions can affect multiple metrics. Let's go back to the marketing spending example. You can be aggressive in customer acquisition and spending even though you lose on those customers, assuming that the loss is small and you have the budget. You can decide to not use this marketing channel and aim for profit. In this case, the tradeoff between revenues and profit depends on what is important for the business at the time of the decision.
Picking the business topline metric will help to do tradeoffs between different decisions. It doesn't mean that the top-line metric is the only metric you should take care of. It gives different weights on the effect of your decisions and provides the decision maker with a more consistent method to decide between different alternatives.
How to choose your business top-line metric?
Very superficially, the topline metric for every business is simple: to put as much money in the pocket of the owners and everyone with interest in the business. The problem with this approach is that it is very hard to understand the connection between the business's day-to-day and what is making more money. The main reason that it's hard is that every business has bottlenecks that prevent you from seeing the real big picture. For example, you can have insufficient leads, or the sales don't go as smoothly as you want.
Write down all bottlenecks you can see in the business and give each of them a score on how it will affect your business in solving the bottleneck. The highest score is a good candidate for being the top-line metric. For example, you run a Facebook campaign to get more leads, many potential customers see the campaign, and a decent percentage of the leads become customers. The bottleneck is the number of potential customers who saw the campaign and became a lead. In this example, getting more leads is a good topline metric.
What should I do with the business top-line metric?
In business, as in life, not everything is simple, and this law probably applies to the topline metric of your business. With the following steps, you will be on top of your topline metric:
- Track the topline metric. If you can access past data of this metric, you will be able to understand past trends and better understand the data you will get after changes you make.
- Monitor the progress of all selected metrics so you will be aware of downgrades in other aspects of your business.
- The topline metric should represent a bottleneck you have in the business. Think of several causes for this bottleneck.
- For each cause, think about possible solutions for the cause
- For each solution, define a small experiment that you could take to help you test whether the solution is working.
- Prepare data for the next experiment.
- Run the experiment. If the bottleneck still exists, choose the next experiment and return to step 5.
- After solving the bottleneck, look for a new topline metric and repeat this process.
For example, in the Facebook example, one cause could be a bad copy in the campaign, and another cause could be the target audience of the campaign. So, the possible solutions are to change the copy or try a different audience. The experiment in this example is obvious: try a different copy or another audience. In both cases, you better understand the leads that become customers and try to understand their characteristics. Run the experiment one by one until the number of leads crosses the threshold you decided and move to the next bottleneck.
- Every business has a lot of data. You should look at part of the metrics that you believe will have a greater effect on your business.
- The topline metric is a single metric from the group you have selected, and it should help to do tradeoffs between different actions by emphasizing the importance of the topline metric.
- The topline metric should represent some bottleneck in the business, and by solving this bottleneck, the business will become a better version of the business.
- You try to solve the bottleneck while you track the progress of all the metrics you have selected.
- Start with the causes of the bottlenecks, continue with possible experiments to solve the bottleneck, and looking at the metrics monitoring to verify that you are on the right track.
- Gook luck