Business Metrics: Transaction Volume
Business Metrics: Transaction Volume
by Tim Smith, PhD, September 18, 2002 | |[pic] | |
| | | | |
| |When measuring market volume, markets are usually measured by unit rather than transactions. |
| |While this historic basis for measuring markets has proven useful for many business people, |
| |sales and marketing teams in B2B businesses should consider replacing the unit sales metric |
| |with the transaction metric. The reason is that transactions are the points that sales and |
| |marketing directly influence. |
| |Measuring markets according to number of transactions versus number of units will not change |
| |the overall estimate of the market size. To get an estimate of the market sizes, the standard |
| |methodology is to take the product of units sold and price per unit. This same estimate can be|
| |derived by counting the number of transactions and the average price per transaction. As such,|
| |measuring transaction volume versus unit volume would appear to be equally valid metrics for |
| |deriving the market size. |
| |If market share is determined by the number of units, switching to a market share by |
| |transactions would affect the description of market shares. For many industries, market shares|
| |have been evaluated according to unit shares that reflect either the volume sold or |
| |size-of-install-base. Changes in market share are reported according to the difference in unit|
| |share in one year versus the unit share in the second year. Evaluating market shares by share |
| |of transactions will yield a metric that more closely represents gains and losses of market |
| |share, rather than overall market share. To clarify this metric, the transaction share should |
| |be measured according to segments, since some segments have larger volumes than others. |
| |Operationally, most project managers and line managers and accountants would rather manage |
| |unit sales or billable hours than transactions. Operations managers have grown accustom to |
| |managing the production of units or managing a team for deliverables. Also, operational teams |
| |will have little influence on transactions. Perhaps the technical expertise origin of most B2B|
| |businesses is the reason that they still track units and billable hours, but this is an |
| |insufficient reason to make unit sales and billable hours the only metric for the company. |
| |The two above comparisons of unit metrics versus transaction metrics are insufficient reasons |
| |to change and operational teams would prefer to continue tracking unit sales, so why should |
| |transactions be measured? Because transactions are the point of influence for sales and |
| |marketing teams. |
| |For consumer markets, quantifying unit sales directly corresponds to quantifying the number of|
| |people that have become aware of the value offering, conducted an investigation of its |
| |benefits, and made a choice to purchase. Unit sales and transactions are roughly the same |
| |metric for most consumer markets. However for business markets, many units are sold in a |
| |single transaction for some value offerings. Quantifying the unit sales, or billable hours for|
| |service driven companies, does not translate to quantifying the number of individuals that |
| |must be contacted, opportunities that must be qualified, and transactions that must be closed.|
| |As such, unit sales are a less valuable metric for B2B markets than transactions. |
| |In measuring transaction volumes and transaction sizes, sales and marketing teams are better |
| |able to design their marketing plan. For instance, high-volume/low-value transactions require |
| |streamlined/low-touch sales and marketing approaches while low-volume/high-value transactions |
| |require greater personal attention from the sales and market team. In particular, a |
| |low-volume/high-value transaction deserves the same level of attention from the sale and |
| |marketing team regardless of whether this transaction involves a single unit or several |
| |million units. By measuring units alone, some individuals may miss this fundamentally |
| |important fact. |
| |While the above example is rather obvious, the value of measuring transactions versus units |
| |continues throughout the entire marketing plan design. How the market is contacted, the |
| |complexity of the sale, the need for technical experts, the need for legal involvement, and |
| |other aspects will reflect the transaction size and transaction volume more than the unit size|
| |and unit volume. Also, the opportunity for growth is directly determined by the opportunity |
| |for transactions in many industries. Focusing on transaction volume feeds the focus on growth.|
| | |
| |Unit sales may be fine for consumer markets or operational plans, but B2B sales and marketing |
| |teams should measure potential transactions, closed transactions, and transaction share. |
| |--- |
| |Tim Smith, PhD is a principal at Wiglaf, a Market Research and Sales and Marketing Strategy |
| |consultancy serving tech-driven businesses operating in business markets. Small and medium |
| |sized businesses select Wiglaf for our quantitative and fact driven approach. . |
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