Who it's for
An owner and a management team who need a shared language before they start discussing decisions.
Key idea
Most management disputes aren't a conflict of positions but a conflict of definitions. A shared glossary removes half the disagreements before they arise.
Contents
- Economics
- Sales and demand
- Management
- Change
- What to do this week
Take the self-assessment
A meeting where three people understand "conversion" as three different things can't end in a decision. It ends with a sense of agreement that falls apart within a week. Below are the terms where discrepancies come up most often, with working definitions.
Economics
Margin
The share of revenue left after the direct costs of delivery. Don't confuse it with markup: markup is calculated on cost, margin on price. The difference in the numbers is significant and regularly leads to wrong decisions about discounts.
CAC
The full cost of acquiring one customer: the advertising budget plus marketing and sales salaries plus tools, divided by the number of new customers. Without salaries, it's not CAC but the cost of traffic.
LTV
The total margin a customer brings over the whole relationship. It's calculated by cohort. An LTV calculated from your best customers is a dream.
Acquisition payback period
How many months pass from paying for acquisition to recovering that amount through margin. For a business without outside capital, this is a more important metric than LTV/CAC.
Break-even point
The volume at which margin covers fixed costs. It's calculated separately in units and in money; the second is more useful for management decisions.
Cash gap
A situation where obligations come due before payments come in. A profitable business can die from a cash gap: profit and cash live on different horizons.
Fixed and variable costs
Variable costs grow with volume; fixed costs don't. Misclassifying them distorts the break-even point and leads to the wrong decision about scale.
Sales and demand
Lead
A contact who has expressed interest. Nothing more. A lead isn't a customer, a commitment or grounds for reporting a result.
Qualified lead
A contact for whom four things are confirmed: the problem exists, there's a budget, there's a timeline, and the person influences the decision. Without a definition of qualification, the pipeline doesn't show reality.
Conversion
The ratio of those who moved on to those who came in, at a specific transition. Always state between which two points. "8% conversion" without naming the transition tells you nothing.
Deal cycle
The median time from first contact to payment. The median, because one long deal distorts the average.
Pipeline
A sequence of stages with transition criteria. If there are no criteria, it's not a pipeline but a set of folders.
Churn
The share of customers who stopped buying during a period. It's calculated by cohort. Rising churn erodes any investment in acquisition.
Positioning
The answer to the question of whom you are the best choice for, and for what reason a competitor can't claim. It's neither a slogan nor a description of services.
Management
KPI
A metric that a specific person can influence through their decisions. A metric a person can't influence isn't a KPI but a source of demotivation.
Leading indicator
A metric that changes before the result does: the number of first contacts, response speed, the share of completed records. You can only manage by leading indicators; revenue reports on the past.
Decision owner
The person who can make a decision without approval and is responsible for its consequences. If there are two such people, there are none.
Limits of authority
A numerical expression of independence: up to what amount, up to what deadline, with what deviation from the standard. Authority without a number doesn't exist.
Management rhythm
A fixed frequency at which deviations are discussed and decisions are made. Without a rhythm, manual control takes its place.
Operating model
How the work is organized: roles, flows, data, decision points. It differs from the org chart: the org chart shows reporting lines, the operating model shows movement.
Change
Bottleneck
The constraint that determines the throughput of the whole system. Improving any other part has no effect; it only increases the backlog in front of the bottleneck.
Transformation
A change of model: what we sell, to whom, how we make money, how delivery is organized. It's neither a process improvement nor a change of system.
Scaling
Replicating a working unit without a proportional increase in complexity. If complexity grows faster than results, it's just getting bigger.
Pilot
A limited test with a success criterion and a stop criterion named in advance. Without the second, it's already the start of a project.
Technical debt
Accumulated compromises that make each subsequent change more expensive. It exists beyond code: in processes, contracts and agreements it grows the same way.
Cost of doing nothing
The sum of direct losses, lost profit, management time and accumulated debt over the period a decision is delayed.
How to use this
Don't send the glossary around. Take one meeting and agree on the three definitions used most often in it. That's enough to notice the difference.
Related service: Owner Advisory
When the discrepancies are about what counts as the business's main task.
What to do this week
Questions to ask yourself
Checking your shared language takes ten minutes
- 01 Ask three managers to define "qualified lead" in writing. Did the definitions match?
- 02 What definition of a deal does your CRM use, and does the team know it?
- 03 Who is the decision owner for your main current task? One person or two?
- 04 Which leading indicator do you look at more often than revenue?
- 05 What does your company call scaling: replication or just getting bigger?
Materials that continue the topic
- Unit economics for owners: seven numbers
- Symptom or cause
