Sunday, September 04, 2011

Measure the Right Numbers

My Sunday Seth:

Twice as much doesn't always mean twice as much

How expensive do you think it is for a fast food chain to switch to sea salt on its french fries? Even if we assert that sea salt costs twice as much as the competitor (dirt salt?), it's easy to see that the impact on the cost of making each order of fries is tiny, since salt is probably 1% of the cost of the item.

That means that upgrading a high-leverage component of your product might not have any real impact on your costs. It just feels that way to the purchasing department.

On the other side of the 'twice' coin, you might discover that you're falling behind the competition. So you spend twice as much on ads, or twice as much time on social media, or devote twice as many of your resources to a problem.

The challenge, of course, is that twice as much of your time or money is irrelevant. Who cares where you started? The correct comparison is to what the competition is investing, and how well.

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