How to Develop and Write KPIs: A Guide for Product Managers
Inducted into Beta Gamma Sigma in 2014 from University of North Carolina, Charlotte and involved with the Charlotte Area Alumni Chapter. This blog post is the second in a two-part product management series. Read part one here.
KPIs (key performance indicators) and metrics serve as essential tools for measuring the performance of your product and identifying areas for improvement.
This article covers.
- What are KPIs and metrics
- Why they are important
- How to choose the right ones for your product.
- Key takeaways
What are KPIs and metrics
KPIs and metrics are distinct performance measurements employed to evaluate a product's success. KPIs are overarching indicators tied to specific business objectives, such as acquiring new customers to increase revenue. On the other hand, metrics provide detailed insights into product performance in specific areas, such as the conversion rate of website visitors to new customers in relation to the KPI of customer acquisition.
Why KPIs and Metrics Matter for Product Managers
Here are a few key reasons why KPIs and metrics matter for product managers:
- They help you make data-driven decisions: KPIs and metrics enable you to gather valuable insights on the performance of your product. By analyzing this data, such as identifying user struggles with a specific feature through metrics, you can prioritize improvements in that area, ensuring informed decision-making for enhancing your product.
- They help you communicate with stakeholders: KPIs and metrics establish a shared language for effective communication with stakeholders regarding your product's performance. By transparently sharing data on the success of your product, you can foster trust and garner support for your initiatives
- They help you measure progress: KPIs and metrics offer an objective means to assess the performance of your product. By consistently tracking your performance over time, you can evaluate your progress towards achieving your goals and pinpoint specific areas that require improvement.
How to Develop and Write KPIs: A Guide for Product Managers
Product managers rely on Key Performance Indicators (KPIs) as vital measurements to monitor progress towards their business objectives. Nevertheless, crafting impactful and actionable KPIs can pose challenges. To assist you in creating KPIs that are meaningful, trackable, and actionable, here is a comprehensive step-by-step guide:
- Start with your business objectives: The first step in developing effective KPIs is to start with your business objectives. What are the goals of your business, and how does your product contribute to those goals? You should have a clear understanding of your business objectives before you start defining KPIs.
- Identify your product's key areas of focus: Then, you can identify the key areas of focus for your product. What are the most important aspects of your product that will contribute to achieving your business objectives? For example, if you're developing a social media app, key areas of focus could be user acquisition, engagement, retention, and revenue.
- Define specific metrics for each area of focus: Pinpoint the critical areas of emphasis for your product. Determine the key aspects that will significantly contribute to achieving your business objectives. For instance, if you are developing a social media app, the key areas of focus may encompass user acquisition, engagement, retention, and revenue.
- Write KPIs that align with your metrics: You can craft KPIs that align with those metrics. KPIs should be straightforward, precise, and measurable over time. For instance, if your metric for user acquisition is the count of new users, a suitable KPI could be to achieve a 10% increase in new user acquisition within the next quarter.
- Monitor and adjust your KPIs over time: Upon defining your KPIs, it is vital to continuously monitor and adapt them as needed. Regularly reviewing your KPIs enables you to pinpoint areas that require improvement and make data-driven decisions. If you find that your KPIs are not being achieved, it may be necessary to realign your metrics or KPIs with your business objectives for better alignment and effectiveness.
Use this template for writing Effective KPIs:
- Definition: Provide a clear and concise definition of the KPI.
- Objective: State the overarching objective of the KPI.
- Target Value: Identify a specific, realistic, and achievable target value for the KPI that aligns with the overall objective.
- Rationale: Explain the importance of the KPI for the business and how it supports the overall strategy.
- Related KPIs: List any other relevant KPIs that should be tracked alongside this KPI to provide a comprehensive performance assessment.
- Measurement Method: Describe the method used to measure the KPI, including the data source, calculation method, and frequency of measurement.
- Responsibility: Identify the individual, team, or department responsible for tracking and reporting on the KPI.
- Action Plan: Describe the specific actions to be taken if the KPI falls below the target value, including the responsible party and a timeline for completion.
Note: Include any additional information or notes related to the KPI that may be relevant for stakeholders or team members.
Let’s take an example of the Instagram application here.
KPI: Increase the Monthly Active Users (MAUs) of Instagram application by 20% over the next year
- Definition: The number of unique users who have made at least one post on Instagram within the last 60 days.
- Objective: Increase monthly active users of Instagram to drive advertising revenue growth and user engagement.
- Target Value: Increase MAUs (Monthly Active Users) by 20% over the next year.
- Rationale: Instagram is a key revenue driver for Meta and is integral to the company's long-term growth strategy. Increasing MAUs will drive more user engagement, and also increase the value of the platform to advertisers.
- Related KPIs: Conversion rate, and time spent on the platform are important KPIs to track alongside MAUs to gain a complete picture of Instagram performance.
- Measurement Method: MAUs will be measured using Instagram's internal data analytics platform and will be reported monthly.
- Responsibility: The Instagram team will be responsible for tracking and reporting on MAUs.
- Action Plan: If MAUs fall below the target value, the Instagram team will conduct user research to identify areas of improvement, implement targeted marketing campaigns to increase user adoption, and work with the Instagram Ads team to improve visibility to users.
By adhering to these steps, you can formulate and establish impactful KPIs that efficiently track your product's performance while contributing to your business objectives. Effective KPIs empower data-driven decision-making, facilitate transparent communication of performance to stakeholders, and ultimately pave the way for your product's success.
Some Common KPIs and Metrics for Product Managers
The selection of KPIs depends on the unique objectives of your business and the characteristics of your product. While the specific KPIs may vary, there are commonly used measurements that product managers often track. To illustrate this, let's consider Instagram as an example product and explore how KPIs and metrics differ based on various objectives. Instagram serves as a platform where users can share their story and engage in conversation with one another.
- Customer satisfaction: This KPI evaluates the level of customer happiness and satisfaction with your product. Metrics to monitor can include Net Promoter Score, customer reviews, or customer support ticket resolution time. For instance, Instagram aims to prioritize user satisfaction, and relevant metrics to track may encompass the average rating of users, or the response time for customer support tickets.
- Engagement: This KPI evaluates the level of user involvement with your product. Metrics to consider include app usage duration, views, or actions taken. For instance, Instagram aims to ensure user engagement by facilitating easy sharing and conversation experience on their platform. Relevant metrics may include the number of ads viewed, or the time spent on the platform.
- Acquisition: This KPI measures the influx of new customers. Relevant metrics to track may encompass website visits, signups, or app downloads. For instance, in the case of Instagram, the primary objective is to attract new users on the platform. The number of new users serves as a vital KPI, with associated metrics including Instagram app downloads, app visits, and new user registrations.
- Revenue: This KPI quantifies the monetary value generated by your product. Metrics to monitor can include conversion rate, or total ad revenue generated. For instance, Instagram generates revenue through ads. A critical KPI for Instagram is the total revenue generated by the app. Relevant metrics to track may include the overall ad revenue generated or the average cost of maintaining the platform.
- Retention: This KPI assesses the number of users who continue using your product over an extended period. Metrics to monitor can include user churn rate, average user lifetime value, or the number of repeat purchases. For instance, Instagram aims to foster long-term user engagement. Key metrics to track may involve the average lifetime value of users, or the rate of user re-engagement after a specific timeframe.
- Conversion: This helps assess the effectiveness of a product in converting users towards a desired outcome. It quantifies the percentage of users who take a particular action, such as making a purchase, or subscribing for a service within a platform.
Through monitoring these KPIs and metrics, Instagram gains valuable insights into platform performance and identifies areas for improvement. This data-driven approach enables informed decision-making, transparent communication of performance to stakeholders, and ultimately propels the product towards success.
Selecting suitable KPIs and metrics can be a daunting process, given the multitude of potential measurements available. It can be challenging to determine which ones hold the most relevance for your product. To assist you in this decision-making process, consider the following key factors when choosing KPIs and metrics for your product:
- Monitor them consistently: It is crucial to track your KPIs and metrics over time to observe the evolution of your product. This allows you to identify trends and patterns that inform decision-making regarding necessary changes and improvements.
- Align with your business objectives: Ensure that your KPIs are directly aligned with the overarching goals of your business. For instance, if your company aims to boost revenue, focus your KPIs on metrics such as customer acquisition, conversion rates, and average order value.
- Maintain simplicity: Avoid overcomplicating your KPIs and metrics. Concentrate on the essential measurements that effectively track progress towards your goals. Excessive KPIs and metrics can be overwhelming and hinder your ability to prioritize what truly matters.
- Ensure they are actionable: It is crucial that your metrics provide actionable insights that enable you to make improvements to your product. For instance, when tracking user engagement, it is essential to also analyze ways to enhance engagement through product changes and enhancements.
KPIs and metrics are essential instruments for product managers, enabling them to effectively track progress towards business objectives, make data-driven decisions, and communicate product performance to stakeholders. To select the most relevant measurements, it is important to align them directly with business objectives, ensure their actionability, maintain simplicity, and track them consistently over time. By adhering to these guidelines and prioritizing key measurements, you can drive continuous improvement and achieve success for your product.
I am Srinath Kotela, a seasoned Senior Product Manager at JPMorgan Chase, with a track record of over 12 years in successfully launching technology products across a wide range of industries. My expertise spans international operations, technology supply chain, SAAS, financial services, and banking sectors. I have extensive hands-on experience in designing and building product operations functions at industry-leading organizations like Amazon and Twilio. Additionally, I am the Co-host of the popular product and technology podcast "Everything Product" empowering the product community around the world.