Forward looking metrics & distribution channel management
Over the last decade sales and marketing has become much more metric driven. A business metric is a quantifiable measure used to track and assess the status of a business process.
Marketing for example, puts a lot of emphasis on monitoring campaign ROI. Campaign ROI is a backward looking metric. It helps the marketer understand the value of the marketing campaign after it has occurred.
What is a forward looking metric?
A forward looking metric provides insight into future business performance. It is a data point that enables one to reasonably predict the future outcome of a business process.
A simple example of a forward looking metric is sales pipeline value. Theoretically, the greater the value of the pipeline the more revenue the business will produce in the future. Conversely, revenue achieved is a backward looking metric. It tells the reviewer how much was produced in the past.
Why are forward looking metrics valuable?
Ideally, a forward looking metric provides insight into a business process while it is occurring. Take again the example of the sales pipeline. By monitoring our pipeline over time we are able to determine the likelihood of future revenue.
Future revenue achievement is usually a factor of the value of the stages of the pipeline times a probability associated with each stage and a time factor to maturity. This metric helps sales management know if they are working enough opportunities to achieve their revenue goal.
The value of a forward looking metric is to provide insight while there is still time to react. In this example, if sales management determines the pipeline value is too low they can increase marketing and sales activities to adapt.
A recent Harvard Business School study found that focusing a financial services customer team on the metric Customer Lifetime Value resulted in a significant shift in attention towards the more profitable client segments (the weight of the top segment in the portfolio of customers increases from 26% to 34%).
What key forward looking metrics are important to distribution channel management?
Two critical outcomes are dependent upon distribution channel performance: revenue and customer satisfaction. Without forward looking metrics there is no quantifiable way to predict these outcomes while there is still time to influence them.
The key to channel management success is to gain an understanding of channel mindshare, sales pipeline, and the channel’s readiness to execute. These three key forward looking metrics are critical to understanding channel outcomes.
The real question is why do most distribution channel managers not focus on these three metrics? We’ll explore this question in a future post, so stay tuned.