How to Choose the Right KPIs
Key performance indicators, or KPIs, are metrics that measure if your product is creating the desired value for the users, the customers, and the business. Without KPIs, you end up guessing how your product is doing. It’s like driving a car with your vision blurred: You can’t quite see if you are heading in the right direction or getting closer to your destination. You might have a hunch, but you don’t know if it is correct.
Using KPIs allows you to make data-based decisions, which increases your chances of achieving product success. Choosing the right indicators — the KPIs that really matter for your product — can be tricky, though.
In my latest YouTube video, I’ll share my tips on how to select those key performance indicators that really help you understand how your product is doing. I’ve put together a summary of my advice below.
Enjoy the video and don’t miss the bloopers at the end. 😉
Tip #1: Start with User and Business Goals
A mistake I see product people make is to rely on metrics that their analytics tool suggests or common measurements for their type of product like activation, daily active users, and churn. But there is no standard set of indicators that is always applicable.
To select the right KPIs, you’ll have to consider the specific value your product should offer. To do this, I recommend clearly describing the user, customer, and business goals you want to achieve as well as the specific outcomes (product goals) your product should create.
But as useful as user, customer, business, and product goals are to determine the right metrics, they are not enough. Additionally, you should use what I call health indicators. These are metrics that measure how healthy your product and team are. Examples are code complexity, number of open bugs, and team motivation.
Tip #2: Avoid Vanity and Appeasement Metrics
Vanity metrics, a term coined by Eric Ries, are measures that make your product look good but don’t add value, such as the number of downloads. Appeasement metrics are indicators, which you use only to please a powerful individual like your boss or a senior stakeholder.
Both types of metrics bloat your set of KPIs and cause you to collect and analyse more data than is helpful. That’s a waste of your time. In the worst case, you act on irrelevant data and make wrong decisions.
Tip #3: Use Quantitative and Qualitative Indicators
As their name suggests, quantitative indicators, such as daily active users or monthly recurring revenue, measure the quantity of something. This allows you to collect “hard” data that can be compared and analysed. Qualitative indicators, such as user feedback, can be more difficult to apply. But they help you understand why something has happened, for instance, why users aren’t as satisfied with the product as you expected. Combining the two types gives you a balanced view of how your product is doing.
Tip #4: Use Not Only Lagging but also Leading Indicators
Lagging indicators are, for example, revenue, profit, and cost. These metrics are very common, but they are backwards-focused: They tell you about the outcome of past actions. Based on them, you can make an informed guess about the future.
Leading indicators, however, allow you to better predict if your product will create the desired value in the future. Take product quality as an example. If the code becomes increasingly complex, adding new features will become more expensive and require more time. Meeting profit targets and release dates will therefore be harder — unless you act now and invest in removing some of the technical debt.
Tip #5: Regularly Review and Adjust Your KPIs
Finally, don’t think of your KPIs as definitive or set in stone. The opposite is true: Whenever user, business, or product goals change, the indicators are likely to change too. New ones may have to be added, and existing ones may have to be removed.
Additionally, some indicators are only applicable at certain life cycle stages. Say your product has achieved product-market fit. You may then start measuring profitability and introduce net profit as a new indicator, assuming that the product directly generates revenue.
You should therefore regularly review and adjust your indicators — at least once every three months, as a rule of thumb.
Learn More
Learn more about choosing the right KPIs for your product and successfully applying them by attending my Product Strategy and Roadmap training course. The next dates are 14–16 November 2023 and 23–25 January 2024.
I also discuss KPIs in my book Strategize. And for my German-speaking readers, I have great news: The German translation is now available!
