Why corporations chase the wrong metrics and how to avoid this

In my many years of working as a marketer, I've seen many companies chase the wrong metrics, all while decreasing their earnings. When you run a business, the number one metric to be concerned about is profitability. How much money is coming in or projected to come in compared to how much money is going out or is projected to go out. If your company is profitable, you're making money! This seems very easy and basic, however, in my practice, I've seen the majority of large and small companies fail at this.

Market Share

One company that I worked for measured itself by market share. We spent millions of dollars on campaigns in chase of increasing market share by 1%, only for it to go back down the next month. We never took time to analyze what return on investment we were getting by spending these millions on these mass campaigns. The Canadian population is only 35 million people - one tenth of the American population. However, Canada is the second largest country in the world and is a very sprawled. This means that the media spend that we incurred to reach most geographic regions in Canada was astronomical, however the number of consumers within our target market in each region was quite small.

This could be very unprofitable for a business. For example, if increasing market share by 1% means a revenue of $5 million and the cost of the campaign is $7 million, then after the campaign, we would be $2 million in the red. This often happens when marketing and finance are not interlocked. Marketing is celebrating the win with increased market share, while finance is beating their heads against a wall. This is why it is most important to chase profitability rather than market share. A company could be very sustainable by having a low market share if the revenue mins the cost is positive and growing.

Share Price

Another company that I've worked for was obsessed with it's share price. What many people forget is that an increase in share price, does not lead to any profits for the corporation. Corporations make money during an IPO (initial sale of stocks) and during any additional sales of shares. After that, the only entities to make money on the price of shares increasing are the investors. A company who's number one priority is share price is usually an indication that the CEO holds a lot of shares and is more concerned with his or her personal profits rather than the company's.

You might say that there's nothing wrong with that, however one company that I worked for where this happened, was not profitable for years and went through a series of mass layoffs for almost 5 consecutive years. Beware of corporations making this mistake and if you work for one, ensure that to ask the leadership tough questions about the future and sustainability of the company.

DSG