Arguing about Revenue Again? Welcome to the Output Trap

Arguing about Revenue Again? Welcome to the Output Trap

If you are someone who is interested in data, lucky you! You live in a wonderful time; a time when wondering about hourly reporting and statistical significance no longer makes you a target for sitcom ridicule. While not all data and tools have been democratised, at least discussions about data have. And yet, many data driven debates do not seem to move the needle.

One might think that leaders discussing revenue trends, traffic volumes, and technical metrics such as conversion rate are on the right track. After all, these are critical metrics in determining your performance. Yet, meaningful actions rarely follow. The issue is that the aforementioned are output metrics. In other words, they are the result of a complex set of inputs. Demanding changes to output metrics is easy – understanding their drivers is not.

Revenue is like a rope. If you want more, simply pulling it does not help. Photo by Michael Held.

Imagine being in a meeting to discuss ecommerce. Revenues are not where they should be. How to fix this? Well, if we can double conversion rate then we double revenues right? OK, go and double the conversion rate! Before long the team has discounted everything and cut back on customer prospecting, and in doing so have crippled the brand’s sustainable growth.

What could have been done differently? Well, instead of worrying about conversion rate, let us discuss its input metrics (and dimensions). How qualified is the source traffic? Are these first time or returning shoppers? Are they looking at full price or discount products? What is the stock depth? What payment types are available, etc.? These are valuable discussions.

A team in this scenario will not simply try to ‘hack’ conversation rate to hit an arbitrary target. Instead, they can identify a number of specific drivers and prioritise those before addressing them systematically. Leadership present in that meeting would also have a clearer idea how they can support. For example, perhaps more convenient shipping options need to be explored.

The most interesting discussions usually occur one or two levels down from your output metrics. Therefore, instead of asking “how do we generate more revenue” or “how do we drive more traffic,” ask yourself “how relevant is my website content?” and “how competitive are my prices?” Even better, frame these as experiments: “what will happen if I refresh my copy daily?”

So many metrics to choose from. So many mistakes to be made. Photo by Jess Bailey.

Of course, I am not disputing the value of tracking outputs, given they are the cardinal metrics to assess performance. Alerts and diagnostics can also add a lot of value. However, only using data and analytics for descriptive purposes leaves the lion’s share of its value untapped. Understanding what factors are contributing to the observed results and being able to anticipate or appreciate how they are going to contribute to future performance is the real prize.

As the saying goes, you treasure what you measure. In becoming data-driven, organisations need to take care to skirt the output trap, and focus the majority of their energies on input metrics. Arguing about revenue will not generate more revenue, but analysing the drivers and moving them in a deliberate way certainly can. Next time you are in a leadership meeting ask yourself: is this a real lever? If not, it might be time to change the topic.

– Ryan