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The Monday Morning Memo

Gnawing on Numbers

July 13, 2015

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https://podcasts.captivate.fm/media/8fa0d413-7e34-45a3-8225-25bb5b6e3954/MMM150713-GnawingOnNumbers.mp3

WizardOfAds_LogoBeagle_v9_780Occasionally a client will send a spreadsheet of company statistics and ask me to comment on what I see.

I usually look and see ambiguous statistics but I certainly don’t want to say that.

Discussing business numbers with people is like discussing religion. No matter what you say, you’re unlikely to change their intrinsic beliefs, so I always approach these conversations carefully.

“What do you see?” I ask.

“Well, last year 68 percent of our customers were repeat customers and 32 percent were new customers. Now we’re selling 63 percent repeat customers and 37 percent new customers.”

“What do you think this tells us?”

“It tells us your ads are working!” the client says excitedly.

“Perhaps it does,” I say. “But it could just as easily indicate that our competition is growing stronger or that we have somehow offended or disappointed our old customers.”

My client gave me a confused look, so I continued, “If a smaller percentage of our business is repeat customers, couldn’t this mean that fewer customers are choosing to buy from us again? Couldn’t it indicate that we’ve disappointed them somehow?”

The confused look became a worried look. “But our sales volume has never been higher.”

“I know that,” I said. “But that could mean that we’re bringing in new customers fast enough to disguise the very serious problem that we’re losing our old customers to someone else. After all, you said yourself that our percentage of repeat customers is down.”

“Do you think we have a problem with our old customers?” the client asked, now truly worried.

“Not at all,” I smiled. “I’m just saying that nothing can be learned from the numbers you gave me.”

Not everything that can be measured has meaning.

Many of you are now recoiling in doubt and disbelief. I get that. Like I said, talking about business numbers is like talking about religion.

Here’s how I finished that conversation: “If a company sells a product or service that people buy once a year, what percentage of their customers will be new customers in year one?”

“One hundred percent,” said my client with confidence.

“And if our sales volume doubles in year two and exactly 50 percent of the customers are new customers, what percentage of customers did we retain from year one?”

The client thought for a moment, then said, “If business has doubled and one half of our customers are new and the other half are repeat, this means that one hundred percent of last year’s customers chose to buy from us again.”

I continued, “Sales in year three are exactly triple the sales of year one. One third of the customers are new and two-thirds are repeat customers. What does this tell us?”

Another moment of thought, he answered, “We have 100 percent retention of customers from the first two years.”

That’s when I said, “But someone is likely to point out that your percentage of new customers is falling and they’ll likely interpret this to mean that your ads aren’t working. After all, your sales volume grew 100 percent in year two but only 50 percent in year three and your percentage of new customers has fallen from 100 percent to only 33 percent. You’re now doing triple the volume you were doing just two years ago but these numbers would seem to indicate that you’ve got serious problems with your advertising.”

The client began to smile again, so I continued, “Oh, and I forgot to tell you that this company increased their prices by 12 percent at the beginning of year two, so none of what we just calculated is accurate. And that company has only been in business for 3 years! Your company, on the other hand, has been in business since 1939 and you sell a product the average person buys every 13 years and lots of old customers have died or moved away and new people have moved to town and some of your old competitors have gotten more aggressive while others have gone out of business and we need to factor in the percentage of sales opportunities your salespeople are closing and yes, you’ve also got a brand new ad campaign. If we take all that into consideration – assuming all the data is available and can be trusted – how are we going to calculate it and what do you think we’re going to learn?”

He smiled as he ceremoniously tore up the spreadsheet and said, “We’re making a lot of money and I like the ads.”

“Good. Let’s go have lunch.”

So we did.

When I got back from lunch, two other clients had emailed spreadsheets to me and asked me to comment on what I saw.

Sigh.

Roy H. Williams

Beagle_Baseball_Yankee_thumbYes, some numbers matter. Do you know which ones?

I told the Wizard that this week’s memo made him sound like he doesn’t believe in numbers. He said, “Indy, don’t be stupid.” I said, “Humor me, boss. Give me a list of all the numbers that really matter and I’ll post them in the rabbit hole.” He sat down and scribbled them out for me. Click the boy reaching for the star at the top of this page and I’ll show them to you.

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Random Quote:

“

The Old Man and the Sea is the story of a fight between an elderly, accomplished fisherman, Santiago, and a really big fish. Like… HUGE. The story opens with Santiago suffering eighty -four days without catching a fish because he’s the unluckiest son-of-a-bitch on planet earth. Honestly, if you were in a boat for eighty four days, it’d be hard to NOT catch a fish… even by accident. Santiago was so unlucky that his apprentice, Manolin, was forbidden by his Ma and Pa to fish with him. But as The Fresh Prince used to say, ‘Parents Just Don’t Understand’, So the boy visits Santiago’s shack anyway. Ignoring the inherent risks of unsupervised playtime with an elderly man who talks to himself, Manolin helps out, moving Santiago’s fishing gear, making food and talking about baseball. Especially Joe DiMaggio; who used to bump fuzzies with Marilyn Monroe. The next day, Santiago tells Manolin that he’s going way out into the Gulf Stream. WAY OUT north of Cuba, Lady luck is returning! On the eighty-fifth day of his crappy luck, Santiago drops his lines, and by noon, gets a bite from what feels like a big•ass fish. He’s sure it’s a winner. He fights and fights and fights but can’t pull the monster in. Santiago’s leaky old boat is pulled by the fish for two days and nights as he holds on for dear life. Even though he’s bloody and beat, Santiago begins to appreciate this mighty adversary. He starts calling him “brother” or maybe even, “bro.” It’s sort of a love story if you really think about it. And like most romantic comedies, the reader pictures a delightful outfit changing montage, followed by the inevitable interspecies wedding. But on the third day, Santiago is freakin’ EXHAUSTED, and decides he just wants the fish to do what he says and not always swim wherever it wants. So he stabs it. With a fucking harpoon. It’s a mess. Super gross Blood everywhere. Because, like many men his age, Santiago has difficulty expressing his emotions and fears with words instead giving in to base desires and imposing his gigantically terrible positions on any given subject through unblinking violence. Typical. Anyway, he straps the marlin to the side of his skiff and hits the road home, ready to act like a total show off to everyone and probably gouge people on the price. But guess what? Pretty soon sharks begin to attack the bleeding marlin’s carcass, because as we all know, life is a tragic opera and just when you think you’ve finally found something good and true, sharks come along and rip it all to fucking shreds while dry-humping your dignity with their crazy weird shark dicks. Sure, Santiago tries killing a few of them, but drops his harpoon because his hands are just as old as he is. By nighttime, the sharks have pretty much eaten the entire marlin, Only a bleach-white skeleton remains, silently mocking him in the murky darkness. Santiago realizes he’s still unlucky, REALLY unlucky. (Duh!) He calls the sharks, “dream killers”. Which isn’t really all that fair. I mean, the sharks were just doing their job and the marlin… Jesus, don’t even get me started on the marlin! It was just hanging out one day, minding it’s own business, maybe thinking about ways it could be a better provider for it’s family and WHAM! Harpoon in the brain. Who’s the “dream killer” now, fuckface? The hypocrisy is pretty much boundless at this point. Eventually Santiago makes it ashore. Leaving the bones of the marlin and the boat, he hobbles to his shack. He makes it home and crashes, like I said – he’s super tired. The next morning, a group of fishermen gather around Santiago’s boat. One measures the skeleton and, holy shit shingles! It’s over 18 feet! The head of the fish is given to Pedrico (strange that this is the first mention of him) and the other fishermen ask Manolin to send their glad tidings to the old man. Manolin brings Santiago newspapers and coffee when he wakes and they decide to fish together again. Many years later, there’s a Red Lobster Restaurant in nearly every city in America, offering a casual dining experience and convenient parking.

“

- title card at the end of Deadpool 2, sent to us by Jeff Sexton because he knows we love Hemingway's Old Man and the Sea

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