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Use 'Moneyball' Metrics to Build a Better Business

By Matt Ehrlichman | Small Business

As the famous baseball book demonstrated, paying too much attention to the wrong details can lead to missed opportunities and wasted money.

In the book and later film Moneyball, Billy Beane, general manager of the 2002 Oakland Athletics, recognized that traditional methods for scouting talent were flawed. The way scouts prospected for players was heavily subjective, often based on a player's reputation, looks, or the same statistics that had been used for a century.

Without a budget to pay for top talent, Beane found an advantage in selecting undervalued players based on unusual combinations of statistics that were better indicators of productivity and success. Beane's unorthodox, data-driven approach to team building paid off, resulting in a championship-caliber team at a fraction of the cost of his competitors.

Like baseball, building a winning business is a game of numbers, and it's not always the ones you might expect. There are plenty of widely used vanity metrics that are poor representations of the actual performance of a website or company. Not clearly understanding the math of a growing business or paying too much attention to the wrong details can lead to missed opportunities, wasted dollars, and eventual strikeouts.

Below are three pieces of advice entrepreneurs can use to follow Beane's lead and build better businesses.

Lead Response Time

The speed at which you respond to an inbound lead has a drastic impact on both your ability to contact and qualify that lead. A study by InsideSales.com found that the odds of qualifying a lead are 21 times higher if the initial contact attempt is under five minutes as opposed to after 30 minutes.

It's a remarkable statistic, considering how much opportunity is left on the table due to simply not responding fast enough. If you are a company that is calling leads back an hour later, a few hours later, or (gulp) the next day, you are missing out on revenue.

Cohort Analysis

Not all customers are created equal, and a cohort analysis can help you visualize these differences by segmenting customer groups and tracking them over time. It can take longer to see results, but the depth of learning you can produce is valuable.

At Porch.com, we break our users into weekly cohorts of our entire user base as well as daily cohorts from each of our primary channels. As we make changes to our site, we can look at the immediate impact to each cohort. We can also start to learn how an initial experience for a group of users impacts their long-term repeat visit rate and value.

Use cohorts to better understand the differences in your customer groups and learn what changes are for the better and which accidentally harmed performance of the site.

Focus on Retention, Then Growth

Driving millions of unique users to your site is great, but they aren't worth much if they don't stick around. Metrics like Monthly Unique Users (MUU's) and pageviews alone are relatively poor indicators of whether your site is performing. For a better measure of success, focus first on your user retention rate--the ability to keep your users coming back to your site again and again.

Finding your company's retention rate is simple. For a specific time period, subtract the number of new customers you gained (CN) from the number of customers you have at the end of that period (CE). Divide that number by how many customers at the start (CS) and you have your retention rate.

((CE--CN)/CS) x 100 = Retention Rate %

It costs 6-7 times more to acquire a new customer than it does to retain an existing one. Spend your marketing dollars wisely by strategically knowing when to acquire and when to retain.

In both baseball and business, the numbers don't lie. Don't be fooled by false indicators of success and use that data to give you a serious advantage over the competition.

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