You will hear about how you need to manage your business using data. This is absolutely true. However, tons of metrics are vanity metrics that can be easily manipulated and where one department is driving for a particular metric they could be undermining the overall goal of the company.
In ecommerce the below is all that matters:
Traffic * Conversion Rate * Average Order Value (AOV) = Revenue
Revenue * Gross Margin% (GM%) – Expenses = Profit
But what happens when a team isn’t accountable for the full stack in the above equations? What if the Digital Marketing team is worried about acquisition costs and are driving down traffic but the conversion rate is up? All is good, right? Not necessarily. It is possible the lower converting traffic has a higher AOV and revenue may slip. Or worse, AOV also goes up but the lower converting traffic was higher margin and your sales are amazing and your profit is now down.
The inverse of the above example is true if you are on the ecommerce site experience team and you suddenly decide to change how recommendations work and suddenly with the same traffic and conversion rate you are trading out higher-priced items for lower-priced ones. The Digital Team is perplexed as to why traffic and conversion is holding steady but revenue isn’t following and AOV is slipping.
Or my favorite, teams managing GM% blindly while revenue and ultimately gross profit and overall profit slips. A wise person, my dad, once told me “You cannot deposit a percentage into the bank, worry about GM$ and only that.” That higher percentage is cool, but if you aren’t generating more dollars it is just that, cool.
There are countless examples where one team is driving to a goal for that team and countering another team. You must look at the full equations when making decisions even if you aren’t responsible for all of them. They are even easier the further away you get from any ultimate metric and more vanity. Managing them should be done with great caution as reducing your bounce rate is simple, cut off traffic to the page. Or if time on page is low, add content. Most metrics are easily manipulated if you have a blind goal, one that only you care about.
Absolutely use data to make decisions. But make sure that you are keeping the entire picture in mind and not propping up a pretty vanity metric that isn’t doing anything, or worse, it is hurting the company.
