August 20

Some time ago I offered to do some pro bono work for a social services agency. My offer arose from my observation that their fee-for-service elder care team was excellent but struggling to grow, and I believed some "for-profit" CRM practices would help. We didn't get there (we will), but what followed was an astonishing view of measurement in a presumably respectable trade magazine. The story begins in the quest for more money.

Delusional Measuring

Non-profits are always looking for grants and major donations. How to get more? Demonstrate how well you did with the last grant or donation, preferably in clear and convincing terms. The Executive Director suggested that we look at measurement as a tool in demonstrating the agency's successes. "All we had to do" was find the right metrics in the agency's program plans and we could set up the data gathering. Admittedly, this is not your typical "volunteer" work, but....

The planning documents for several of the agency's programs arrived. Each contained goals, the plan, progress, and some metrics. Unfortunately, the metrics weren't persuasive to anyone outside the agency.
I had no ideas. Nothing gelled until I came across an article that was tossed into the back of the packet of documents without mention. No, the article did not show the way. In fact, I would call this experience "revelation by seeing it done wrong" (pardon the judgmental tone). Back in engineering school, we used to call it "demonstration by counter-example".

To explain, we'll need to clarify some ideas. We'll use children's reading levels (presumably measurable) as an example, and I'll follow with something more relevant to business.

First, what are you measuring? You can measure the intended outcome ("raising literacy in English"), or the process - the methods and tasks you're using to get to your outcome ("number of meetings with the children's parents").

Second, how are you measuring? You can measure in subjective terms ("the kids did better in school"), or you can measure in objective terms ("the children's reading level went up two grade-levels in six months").

Obviously, objective measurements are more effective in making your case, particularly if you can measure outcomes. "We raised the reading level of 50 children by two grade levels in a five month program funded by your $30,000" is much more convincing than "all the children felt they were doing better in class".

Back to the article that triggered this... It's hard to measure soft outcomes like improving fluency in spoken English. It's often easier to objectively measure processes, as in, say, counting the number of extra English classes each student attended. So, the article suggests using process metrics as stand-ins for outcome metrics.

Really!?! So "I made five sales calls today" is just as good an indicator of performance as "I closed a $5 million deal"? Unless you can prove that the process metric is a highly reliable predictor of an outcome that's hard to measure, this holds no water. And if it's hard to measure the outcome, how can you prove the process metric is a predictor?

Measure outcomes. Measure process only as a check on the "pipeline" to your outcomes, or as a diagnostic tool for your process when outcomes fail.

Measuring Customers

If you have come to appreciate the benefits of CRM systems or the CRM process (more accurately "Customer Base Development"), you know that many CRM systems offer measurement capability. But what to measure?

Unfortunately, many of the measurements are process metrics - number of calls made to or taken from a contact, time since last contact, etc. One that seems like a useful measure of outcome is total sales for each customer. However, sales volume is not necessarily the desired business outcome - it's profit or return.

I suggest a measure that I've written about before: "Return on Customer". Consider measuring what you gained compared to what you put in. You gained the sales. You put in the cost of the marketing campaign that reached (or should have reached) your customer, the cost of sales, the cost of goods and services delivered, and the cost of post-sales support, all inflated by indirect costs and overhead.

Suggestion for measuring: You may be able to get the costs out of your accounting system; if you can't attribute them directly to a customer, calculate a standard cost for sales calls, support calls, etc. Then get the number of such events from the CRM system. Add in the costs of goods and services for purchases made by the customer and you have your "investment". In simplest terms, if the profit from the sale is less than the investment, you're losing money on that customer.

If your return on customer measured this way is negative (or measured as a fraction comes out to less than 1), you have not achieved the desirable outcome - a profitable relationship. Of course, the usual inclination is to attempt to reduce costs, but you simply may have a customer who makes too many support calls, asks for too many sales calls, or gives you too little profit on purchases. Fire that customer.

Spin In Measurement

Last week an article in USA Today debated Delta Airlines' claim that it is the largest airline in the country. Delta claimed to have more destination airports or more flights than any other airline. As the article pointed out, "passenger-miles" is the accepted measure, and Delta isn't in first place. By Delta's standard, flying more empty planes to more airports to which nobody wants to travel is an acceptable outcome.