March 13, 2011

Analytics Sunday: Profit, Profit, Profit

Dear Analytics Experts:

You are really smart people with a bright future in a field growing in importance.  Seriously.  A recent college graduate, with significant mathematical aptitude, asked me which profession she should consider.  I told her "Web Analytics", of course!  If I were twenty-five years younger, this is the path I would choose.

For the past eighteen months, I actively watched or participated with you in conversations on Twitter.  Continually, I am frustrated by the content.  Not the technical content, that's good stuff, there's tons of good advice out there for the aspiring analyst.

I'm frustrated by the fact that you probably don't have a mentor in your company, a mentor who helps you focus on communicating important results to management.

A mentor is that gray-haired individual who shares war stories with you, helping you get around all of the roadblocks that stall a person with great technical skills.  A mentor is somebody in your company who pushes you to be better, from a business and inter-personal standpoint.

Analysts, for instance, are taught to focus on data, they're taught to make data-driven decisions, to create a culture of analytics.

Your Executive team isn't interested in a culture of analytics.  Your Executive team is interested in profit.

Let's focus on a very simple example.  In this example, you work for a typical $100,000,000 e-commerce brand.  Your analytics skills and your A/B tests yield a strategy that increased conversion rates by 8%.

Now, how are you going to communicate this nugget to your Executive Team?

Here's what you should avoid:
  • Avoid conversion rate discussions.  Conversion rate discussions don't resonate with members of your Executive Team.  They simply don't understand what eight percent means ... is that good, is that bad, is it eight percent of a five percent conversion rate (yup) ... if it is, they'll say, "well, that's nothing, what about the ninety-four percent of people who aren't converting, what are we doing about them?"  In other words, conversion rate discussions can become mysterious and mindless strolls into a maze of circular psuedo-logic.
  • Don't talk about ROI.  ROI has a negative connotation among many folks --- so many vendors and marketing experts have manipulated numbers to make "ROI" look great.  You don't need to manipulate anything, you're smart, you're savvy!
  • Avoid geekspeak.  I know you want to show off your A/B test design, you want to prove that your results are statistically significant at a 99% level, you want to show how you used Omniture to make magic happen.  Not one person on your Executive Team cares.  They do, however, care about the outcome.  So focus on the outcome!  And have your ducks in a row ... write up the results as if your Executive Team cares, and pass them out if questions start flying.
Here's what you can do:
  • Focus on profit.  I know, you think profit is some boring outcome of an old VisiCalc spreadsheet that is housed on an IBM AT computer with a 20mb hard drive in the finance department.  It isn't.  Profit is the currency of your Executive Team, your shareholders, or your owner.  DO NOT be seduced into all that stuff about "scale" and finding investors like Goldman Sachs or VCs or whatever ... you work in the real world, and in the real world, somebody has to make money or your business doesn't exist.  So focus on profit.  People understand profit.
We're back to the image at the top of this post.  Your test shows that you can increase conversion rates by 8%.

Convert this increase to profit.  Sit down with your finance team, and demand that they give you the tools necessary to calculate profit.  Unless your finance team is doing something illegal, they will give you enough data to make a rough profit calculation --- it's their job.

In our example, an 8% increase in conversion rate results in $2.9 million in incremental, annual profit.

Your company makes $9.0 million in annual profit.

This means that you, a humble analyst, found a solution that increases company profit by 32%.  Thirty-two percent!  You didn't just find an 8% conversion rate increase, you likely made a contribution to profit that is bigger than any other employee in your company!

That's important!

Make two of those contributions, per year, coupled with good interpersonal skills, and you'll be a member of your Executive Team in no time.

You create a data-driven, analytics culture by demonstrating that your work maps directly to company profitability.

Focus on profit.  Start making a difference with your Executive Team.