Judging business performance and limitations

Judging how well a business is doing from one figure is risky. Quantitative data — numbers such as revenue, sales volume, market share and campaign conversion rates — gives evidence to support, inform and justify a decision. A single measure, such as rising revenue, does not prove success: you need data from several sources to build a fuller picture.

Financial data must be read in the context of market trends and market conditions. A climbing centre chain whose revenue rises by 8% may look healthy, but if the indoor climbing market grew by 15%, it is losing market share. Marketing data might also show fewer enquiries turning into bookings, while one centre could be busy and another quiet. Data can be contradictory or unclear, and parts of a business can perform well while others struggle.

A business can only make the best decision possible using the data available at the time. Using data reduces the risk of a poor decision, but it does not guarantee success. Financial information has limits: it can quickly become out of date as markets change, or cover a time period that does not suit the decision — three months of figures is a shaky base for a plan covering the next two years. It can also be distorted by seasonal swings, so seasonal adjustment evens out these periodic patterns before comparisons are made. Forecasts are built on past events, so they can be unreliable because the future is uncertain.

Financial data also omits non-financial factors such as customer satisfaction, brand image, employee morale and competitors' actions. It may reflect external factors too: a café's sales could fall because of roadworks outside, not poor management. To judge performance more accurately, compare financial data with marketing data, market data and other relevant information.