Many companies use the wrong metrics to measure their performance, especially when it comes to social media. I run a social media company, and until recently even we were confused about what metrics mattered.
If you think pageviews, unique visitors, registered members, conversion rates, email-newsletter open rates, number of Twitter followers, or Facebook likes are important by themselves, you probably have no idea what you’re doing. Those metrics are the most common false idols of analytics. They’re what Eric Ries, author of The Lean Startup, calls “vanity metrics.” Vanity metrics look good but fail the “So what?” test. Before you tell your CEO you have a million Twitter followers, ask yourself, “So what?” A better metric is how many products you sell as a result of tweeting a link to your purchase path.
Here are four of the most important metrics you can follow — notice how little they have to do with popular social media metrics.
Relevant revenue. Note the word “relevant,” which refers to recurring sales in your core business. Don’t count revenue from one-time or stagnant sources.
Sales volume. This can be a number like units sold or active subscriptions, something that shows whether or not enough people want to buy what you’re selling.
Customer retention. Metrics like “new customers” can hide the fact that although you may attract 1,000 new users a month, you’re losing 900, which means you’re not going to scale.
Relevant growth. Too often, companies compound the stupidity of their choice of metrics by creating a metric tracking the growth of vanity metrics. You should be looking for a traceable pattern in which the actions of your existing customers create new customers.
That’s what Ries calls an “engine of growth.” These metrics are valuable because they measure success of your core business. To measure the value of your social media activities, you have to look at the results the company is getting overall and track how social media was involved in moving the needle. That’s where you’ll find the only relevant social media metrics.
Seek out what Ries refers to as “actionable metrics.” Measure numbers that demonstrate cause and effect, giving you a good idea of what to do next. Your number of registered members or Facebook friends can’t do that. The best kinds of metrics also trace individual paying customers you could call up and talk to. The more you aggregate customer behavior, using metrics like pageviews, the less valuable the data is. If you can, build analytics into your products to improve focus and accuracy.
Figuring out whether a number is a vanity metric requires analysis of your particular business. Our strategic partner, AOL (home of the Huffington Post Media Group), has a display ad business model, so in AOL’s case, pageviews are a relevant metric. One of my firm’s clients is a nonprofit with educational goals, so the number of readers who shared a piece of content, a social media metric called amplification, is relevant.
At some companies, there’s a misunderstanding about what social media is. Traditionally, managers were used to achieving business objectives in departments that make things, sell things, or manage money. While social media activity is very easily measured, it has little in common with these core business functions.
Social media is a big-picture, interdisciplinary concept that covers an evolving set of digital methods through which stakeholders interact. These methods can become major marketing channels, customer-service delivery channels, and new ways of gathering intelligence. Internally, your team can use social technologies to share information, build relationships, and get work done. Much of this is profoundly important yet intangible. Intangibles are the enemy of actionable metrics.
Our company used to generate extensive analytics reports. I realize in hindsight that we were looking at them the way we might look at a sales report, despite the fact that our traffic and membership numbers weren’t translating into sales. Vanity metrics are accurate but irrelevant. Now we view social media as a toolbox that can help us achieve our tangible objectives — such as revenue, sales, customer retention, and growth. We design our social media metrics to reflect that.
For more articles like this one, download the Harvard Business Review report: Putting Social Media to Work.
*Reprinted with permission from Harvard Business Review.