Financial Analysis: Actionable Metrics vs. Vanity Metrics

by J.B. Maverick

2 min read

A useful way to get to know more about your company is through metric analysis. Metrics are calculations or measurements that show how your company is doing in certain areas. Some metrics are more useful to be used within your company while other key performance indicators are most useful to people outside of your company. These two types of metrics – vanity and actionable metrics – should be used in different situations because they tell you different things.

Vanity Metrics

Vanity metrics are measurements that tell a story about your company. These metrics are less helpful in decision-making and more useful for telling people outside of your company certain things. Vanity metrics make your company look and sound good even though they are somewhat hollow. An example of a vanity metrics is the number of e-mail subscribers signed up to your newsletter or the number of pageviews your website receives. In both of these situations, you don’t actually know who is reading your newsletter or buying your products online. These metrics scratch the surface of how your company is doing regarding building an e-mail distribution list or driving website traffic. But, they don’t tell you about active users, interactions with customers, or anything relating to revenue or expenses. You shouldn’t try to directly improve your vanity metrics because your efforts may not be improving your company overall. Your e-mail chain can grow to 10 times its current size, but this doesn’t mean your business has actually grown at all.

Use of Vanity Metrics

Vanity metrics are most useful in marketing or promotions. Because they’re high-level and easily understandable, your customers are more likely to relate to these numbers. Potential customers don’t care about your average cost to get each new customer. Instead, they’ll be interested in knowing you have 2,000 email subscribers.

Actionable Metrics

Actionable metrics are used to make business decisions. They’re often more detailed, more specific to whatever is being analyzed and should be tracked over time to follow your progress. The average of money you spend to get every new customer is actionable because you should try to improve this number. It has a direct relationship on how you operate, so you should try to take action on making this average expense lower.

Use of Actionable Metrics

You should use actionable metrics within your company. They have the most benefit when kept internal because they tell you what items you should take steps to improve. You can use actionable metrics like turnover ratios, activity ratios, response times to customer inquiries, and industry averages to improve your business. You’ll probably be asked actionable metrics when applying for a loan or trying to secure new investors. People putting money into your company will have more interest in knowing the more substantial facts about your business.

Distinguishing Between Metrics

There are countless types of facts and figures you can use to measure your company’s operations. It’s important to distinguish which are for vanity and which are actionable. Ask yourself if the fact or figure directly measures how your company is doing. Look for measurements that tell you about how your sales, spending, or customer interactions. Understand that knowing a vanity metric like social media followers has value, but realize that increasing your social media following is not your end goal. Use actionable metrics to improve your company and vanity metrics to easily communicate its success.

References & Resources

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