Tuesday, April 13, 2010

Wanted: A New Means for Comparing Numbers

How is it that we get all excited when a market is expected to grow by 20% and not get excited when a market is expected to grow by 5%? Now that you have stopped laughing, you are saying to yourself, “Because 20 is bigger than 5. Duh!”

That’s exactly the point, is 20 actually bigger than 5? If the total revenue for a market is currently $50 million and is expected to grow 5% ($2.5M) , isn’t that much better than a $5M market growing 20%. ($1M).

In the customer service business, it’s always nice to hear about companies who have improved their “customer satisfaction” numbers. I like knowing there are businesses who are really making an effort to do better. But how much better are they really doing. If my company has a customer satisfaction rating of 40% and it improves to 50%, do I tout the 25% increase or say it went up 10%? What if my competitor started at 80% and went to 90%. What should they report? More importantly, how do I compare these 2 companies.

What is needed is a new way to reports growth rates. A new mathematical model that allows for a real apples to apples comparison. A model that takes into account the starting point and ending point and recognizes that it’s important to know how far the needle moved as well as where it started.

Does that mean we start using logarithmic values? Perhaps some new “growth factor” can be formulated to indicate the true distance covered when reporting sales growth and revenue growth numbers. Perhaps some PhD will use this idea for a thesis and solve the problem for all of us…..assuming the analysts pick up the idea and run with it.

The bottom line is this. Without a means of comparing apples to apples, it is almost impossible to evaluate the financial strength of one company over another or the size of one market over another. Multiple points of measure need to be computed and evaluated in order to grasp the significance of any one number.

Will it happen soon? I hope so though I recognize that numbers are wedded to obfuscation.

What do you think? Would a “growth factor” make your life easier?

3 comments:

  1. Interesting thoughts, a sort of public health index then? May be impossible given how much tricky accounting is out there.

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  2. Check out ACSI
    http://www.theacsi.org/index.php?option=com_content&task=view&id=12&Itemid=26. They have developed a way to track customer satisfaction to stock value.

    Also Customer Experience Index from Forrester, http://www.forrester.com/rb/Research/customer_experience_index,_2010/q/id/55833/t/2

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