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10 Tips for Using Key Performance Indicators

Published on 14th December 2015 Last Updated on: 18 Jul 2023

Product key performance indicators, or KPIs for short, are metrics that measure the performance of a product. They help you understand if the product is creating the desired value. Without KPIs, you end up guessing how your product is doing. But choosing the right indicators is not always straightforward, and I have seen many product people struggle with it. This post shares my tips on how to select those KPIs that really help you understand how your product is doing.

1 Use the User, Business, and Product Goals to Choose the Right KPIs

To select the right key performance indicators or KPIs, you must be clear on the user and business goals your product serves. If your product directly generates revenue, then revenue is likely to be a key indicator, for example. If you are not sure what these goals are, then ask yourself how the product benefits the users and the company. Why would people want to use it and why would the business want to invest in it? Then take the next step and capture the goals using, for instance, my Product Vision Board. You can download the tool and find out how to use it at romanpichler/tools/product-vision-board.

The Product Vision Board

Additionally, use any product goals that you have set for your product to derive further KPIs and complete your set of indicators. Product goals are specific benefits or outcomes that your product should create. These goals should be derived from, or at least aligned with, the user and business goals. I capture them on a product roadmap like my GO roadmap, as I explain in more detail in my article How to Choose the Right KPIs for your Product.


2 Make the Goals Specific

Knowing the business goals of your product is a prerequisite for selecting the right KPIs. But it is not enough. To effectively apply the indicators, analyse the resulting data, and take the right actions, the goals must be specific and realistic. Establishing such goals can be challenging, particularly for brand-new and young products. The next tips will help you with this.


3 Use Ratios and Ranges

Work with ratios and ranges to describe your goals, as Alistair Croll and Benjamin Yoskovitz recommend in their book Lean Analytics. Instead of stating that a new product should create x amount of revenue per year, you could say that the product should increase the company’s revenue by five to 10% within one year after its launch, for instance. While you might not be sure that goal will be met, at least you have drawn a line in the sand against which progress can be measured. If it turns out that the goal is too ambitious, then you move the line and adjust the target.


4 Avoid Vanity Metrics

Stay clear of vanity metrics, measures that make your product look good but don’t add value. Take the number of downloads for an app as an example. While a fair amount of people might download the product, this tells you little about how successful it is. Instead of measuring downloads, you should choose a relevant and helpful metric, such as daily active usage or referral rate.


5 Don’t Measure Everything that Can Be Measured

Don’t measure everything that can be measured and don’t blindly trust an analytics tool to collect the right data. Instead, use the business goals to choose a small number of metrics that truly help you understand how your product performs. Otherwise, you take the risk of wasting time and effort analysing data that creates little or no insights. In the worst case, you action irrelevant data and make the wrong decisions.


6 Use Quantitative and Qualitative KPIs

As their name suggests, quantitative indicators, such as daily active users or revenue, measure the quantity of something rather than its quality. This has the benefit of collecting “hard” and statistically representative data. Qualitative indicators, such as user feedback, help you understand why something has happened, for instance, why users aren’t as satisfied with the product as expected. Combining the two types gives you a balanced outlook on how your product is doing. It reduces the risk of losing sight of the most important success factor: The people behind the numbers, the individuals who buy and use the product.


7 Employ Lagging and Leading Indicators

Lagging indicators, such as revenue, profit, and cost, are backwards-focused and tell you about the outcome of past actions. Leading indicators help you understand how likely it is that your product will meet a goal in the future. Take product quality as an example. If the code is becoming increasingly complex, then adding new features will become more expensive and require more time. Meeting profit targets and delivery dates will therefore become harder. Using backward and forward-focused indicators allows you to tell if you have met the business goals and helps you anticipate if the product is likely to meet the goals in the future.


8 Look beyond Financial and Customer Indicators

Financial indicators, such as revenue and profit, and customer metrics, including engagement and referral rate, are the two most common indicator types in my experience. While these metrics are undoubtedly important, they are not sufficient. Say your product is meeting its revenue and profit goals and that customer engagement and referral rate are high. This suggests that your product is doing well and that there is no reason to worry. But if at the same time, the team motivation is low or if the code quality is deteriorating, then you should be concerned: These indicators suggest that achieving product success will be much harder in the future. You should therefore look beyond financial and customer indicators and complement them with the relevant product, process, and people indicators.


Compare the data you report to other time periods, user groups, or competitors, such as revenue growth over the last six weeks or cancellation rates from quarter to quarter. This helps you spot trends, for instance, if revenue is increasing, staying flat, or declining. Trends allow you to better understand what’s happening and to take the right actions. If a decline in revenue is a one-off occurrence, for instance, then there is probably no reason to be overly worried. But if it is a trend, then you should investigate how you can stop and revert it – unless you are about to sunset your product.


10 Use a Product Scorecard

Once you have selected the right key performance indicators for your product, you should collect the relevant data and regularly analyse it. A product scorecard like the on shown below is a great tool for this job. An effective scorecard uses the right indicators and helps you spot trends.

Balanced_Product_Scorecard_Template

Post a Comment or Ask a Question

2 Comments

  • Suchismit Gupta says:

    Hi Roman, it was a very informative blog. Could you please tell me which are popular applications/tools to analyze product metrics (i.e. churn rate, monthly recurring revenue, Customer Lifetime Value, Daily Active User/Monthly Active User ratio, Bounce rate/ or Quantitative and Qualitative KPIs
    /Lagging and Leading Indicators)? I am looking forward to your response. Thanks a lot!

    • Roman Pichler Roman Pichler says:

      Thanks for sharing your feedback and question Suchismit. I recommend that you first determine which KPIs you want to use. Then identify the tools you require to gather the relevant data. This might be a tool like Google Analytics for the customer KPIs and your company’s sales tool for some of the financial indicators. Finally, decide how you want to visualise the data, for example, by using a product scorecard and showing trends for the past months/quarters. Hope this helps!

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