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. . |

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download