BEHIND THE NUMBERS: Measuring Success
How’s business? The question gets asked millions of times a day in virtually every language on the planet.
BY: AL SHERMAN
How’s business? The question gets asked millions of times a day in virtually every language on the planet. The answer is usually something like, “GREAT!” or “Fair” or “Terrible” or “Don’t ask.” Sometimes we get a response that includes a number: up 10% or down 15%.
What does that mean exactly? Let’s say, for example, that you operate a lumberyard. Let’s also say that singlefamily builders are an important market segment for you.
Now, ask yourself the question: “How’s business?” Assume your sales to singlefamily builders were up 10% in 2013 from 2012. That’s a nice, clear, meaningful measure in most industries and would probably indicate solid growth—but not necessarily in our business. Not in a business where the market potential changes so much from one year to the next. From 1961 to 2013, the average year-over-year percent change in single-family permits in absolute terms (that is, without regard to whether the change was positive or negative) was greater than 13%, ranging from a low of 1% (1996-1997) to a high of 65% (1982-1983). With that kind of volatility, you really need to look at your change in sales relative to the change in market potential to answer the “how’s business?” question.
Even without the volatility, it would still be difficult to measure market share in percentage terms in this industry.
There’s no good source for the detailed information required at the market level. And, in general, market sales data can never be timely enough or specific enough to be of much immediate value. But a hard market share number isn’t really necessary. What I would want to know, on a regular and timely basis, is whether I’m gaining or losing share. If single-family builders are an important part of my business, I want to do the best job I can of evaluating my success with them.