In the world of business, averages are often used to measure and assess various aspects of a company's performance. From market revenue to customer spend to customer composition, averages are relied upon to provide insight into key business metrics. However, using averages alone can be a dangerous approach when it comes to making strategic decisions. This article explores the pitfalls of relying solely on averages and the importance of diving deeper into the component parts that make up these averages.
One of the biggest mistakes companies make is stopping at too high a level of averages when analyzing their data. While averages may provide a general overview of a company's performance, they do not necessarily provide a detailed understanding of the market, revenue, or customer base. For example, reporting that the average company spends $1,000 with your business may seem informative, but this figure could mask important differences in spending habits across different types of companies, industries, and geographies. Without examining the component parts underneath these averages, businesses are forced to make assumptions or presumptions about the nature of those averages.
To avoid these dangers, companies need to use segmented averages to gain a more comprehensive understanding of their data. This means breaking down averages by size of company, industry or geography, or by the types of products used. By doing so, businesses can identify which sub-averages are most relevant and meaningful for their strategic development.
It is essential to examine the state of the average company in an industry versus the average company in your customer list or business development pipeline. For instance, if 10% of typical companies are from the professional services sector, but 20% of your prospects are from this sector, using segmented averages becomes crucial. It enables businesses to understand where they are over or under the expected values and adjust their strategies accordingly.
However, simply using segmented averages is not enough. Businesses must also make the component values of any rolled-up average available and convey a signal that the average for the business is not very useful because it represents only a small percentage of their customer base. To get details, they need to go deeper. This kind of precision of execution is crucial to ensure the value of any information is useful for making decisions.
To illustrate this, imagine a business that generates an average of $1,000 of revenue per customer and wants to grow revenue by 20%. Setting this as the target is not enough; the business needs to understand where the revenue per customer will come from, how many customers they need to achieve this, and what their spending habits are. Without this level of detail, they risk making misguided strategic decisions based on misleading metrics.
In conclusion, using averages in business strategy can be a useful tool, but it is essential to understand their limitations. Relying solely on averages can lead to inaccurate assumptions and misguided strategic decisions. By using segmented averages and diving deeper into component parts, businesses can gain a more comprehensive understanding of their data, adjust their strategies accordingly, and achieve their expected outcomes
Here to help
Discover your most valuable customers and use their perspective to optimize your strategy. Learn about the Avasta team and our dedication to fostering clarity for companies around the world.
Four Traps that prevent marketers from generating accurate insights
“I talked with Edgar Baum, brand economist and Founder and CEO of Avasta Incorporated, about the CMO Knowledge Gaps.”
Big Data vs. Thick Data
The definition, application, and examples for big data and thick data
Brand Global Summit
Brand Global Summit 2022 "In Brands We Trust"
Companies are Brands, Intangibles are Tangible, Expenses are Assets. By Edgar Baum. Page 90 and 91…
Edgar Baum: Avasta Empowering Leaders To Grow Their Businesses
Avasta CEO and Founder, Edgar Baum, gets interviewed by Made In CA to explain how Avasta helps leaders grow their business.
The Champagne Strategy Podcast
Brand Strategy and Evaluation
Edgar Baum on Measuring Brands’ Contribution to Revenue with Mathematical Accuracy – The Evaluation of Intangibles…
The Financial Value of a Brand Only Exists with Good Measurement and Management
From the metaverse’s impact on business management to how our CEO has become an eminent speaker at globally leading events - read Edgar Baum's interview with InnoKOL Group.
The CMO Knowledge Gap
“I’ve recently come in contact with a number of ex-blue-chip CPGers who lament the decline of the big companies.”
The definition, application, and examples for buyer profiles, from the perspective of Avasta.
Executive Sentiment on Revenue Recovery from the Impact of COVID-19
Companies are operating in a fragile environment but often miss capabilities, data and pace….