How to Choose the Right KPIs for Your Product

Photo by Diana Polekhina on Unsplash

A key challenge of working with KPIs is to select the right indicators: There are so many different metrics to choose from including daily active users, net promoter score, and profit, to name just a few. What’s more, senior managers and stakeholders can have strong views on which indicators should be used. This article helps you select the metrics that really matter and are truly helpful for your product.

An audio version of this article is available at: https://www.romanpichler.com/romans-podcasts/how-to-choose-the-right-kpis-for-your-product/

What are KPIs?

A Goal-directed Approach to Choosing KPIs

As you may have noticed, I suggest using a goal-directed approach to identify the right indicators. I am not a big fan of “standard” KPIs, for example, customer acquisition cost (CAC), churn, and number of active users for SaaS products. While it’s helpful to be aware of the indicators that may be commonly used for the type of product you manage, it would be a mistake to blindly adopt them. Employing user, business, and product goals to guide the selection of KPIs avoids this mistake and it ensures that your indicators are relevant and helpful.

Step 1: Take Advantage of the Product’s User and Business Goals

Say I want to offer a product that reduces the blood sugar levels of individuals who have type-2 diabetes and that generates £50k of revenue within the first 12 months of launching the app. I would then ask myself how I can measure that the product creates the desired user and business value. To determine the former, I might choose user feedback, net promoter score (NPS), and referral rate as the key performance indicators. To understand the latter, I might select monthly recurring revenue (MRR).

Note that this approach assumes that valid user and business goals are available. In other words, the goals should be part of a validated product strategy — a strategy whose key assumptions and risks have been successfully addressed. This might have involved observing target users, interviewing them, carrying out competitor research, and using throw-away prototypes, to name just a few strategy validation techniques.

Step 2: Use Product Goals to Discover Additional KPIs

Say the goal of my initial product (MVP) is to allow the users to better understand their eating habits and acquire an initial user base. I would then look at the first part of this goal and ask myself if I need to introduce a new indicator. As I’ve already chosen user feedback, net promoter score, and referral rate, I would not add another metric at this stage. But the second part, acquire an initial user base, would require the introduction of a new KPI in order to understand if the acquisition goal has been met. To do so, I might measure market share, for instance, by tracking the product’s position in the appropriate app store.

Step 3: Add Health Indicators

But if the team motivation is declining — as people are being overworked or stressed — or if the code quality is deteriorating — as bugs are accumulating and the code complexity is increasing, alarm bells should go off. These indicators suggest that achieving product success will be much harder in the future, due to an increase in technical debt, higher absenteeism or turnover rate.

It is therefore helpful to add metrics that measure how healthy your product and team are and that allow you to spot important warning signs early on so you can be proactive and respond to them in a timely manner — instead of reacting to them with the back against the wall. These indicators include product quality, schedule variances, which is the ability to meet product goals on time and budget, team motivation, team knowledge and skills, and stakeholder engagement.

Less is More

Using more KPIs than necessary and analysing data that provides no value is a waste of time. In the worst case, you act on irrelevant data and make wrong decisions. Think of driving a car. A small number of indicators are helpful for safely getting to your destination, including how fast you are travelling and how much battery/fuel is left. If the car dashboard continuously showed a range of other data, such as tyre pressure or ABS status, it would be harder to take in the relevant information and make the right decisions while driving.

Therefore, limit the number of KPIs you use. Carefully select them by using the factors discussed above, and regularly review and adjust them. Don’t make the mistake of allowing powerful stakeholders to dictate KPIs to you. Instead, explain to them how effective product KPIs are derived, and consider inviting them to the next product strategy workshop in order to collaboratively determine the right KPIs.

Learn More

Strategize

Product management expert. Author of “How to Lead in Product Management”, “Strategize” and “Agile Product Management with Scrum”. www.romanpichler.com

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store