By Vinod Kumar
At this point in the Actionable Analytics series, we’ve explored Pirate Metrics and the ABC Framework. In this post, we’ll look at the Economic Value Model.
Widely attributed to renowned author and Google Analytics product evangelist Avinash Kaushik, this model takes the view that it’s not sufficient to measure just the revenue or conversion rate; instead, you should look at the net income of the online business. Basically, this model requires you to focus on the overall economic value rather than a narrow indicator of success. As you can imagine, generating this view requires combining multiple data sources.
The core premise of the framework is that net income is a product of unit margins and unit volumes. If you can measure, report and eventually control the strategies that affect these two factors, then you have a framework that can influence net income to align with your organizational goals. Since unit margin data seldom lives within a typical web analytics tool set, it’s obviously important that you have access to this data for this framework to work. This data would typically live in an ERP system or in your system of record for COGS (Cost of Goods Sold) information.
As you can see, this framework is more elaborate than the previous two discussed in this series. The above flowchart illustrates how the Economic Value Model can help you organize metrics in a way that can quickly give you a sense of optimization opportunities in your business model at a strategic level. The other frameworks are tactical in nature, making them more useful in troubleshooting issues and identifying root causes for ‘badly behaving’ metrics.
It seems like there are new companies sprouting up every day that promise Big Data nirvana, but the reality is that data without actionability is meaningless. Organizing data in a manner that enables you to take action is where the true potential of Big Data lives.
In this blog series, we’ve reviewed 3 analytics frameworks: Pirate Metrics, the ABC Framework and the Economic Value Model. I hope that some of these frameworks inspire you to organize your data with a bias towards action.