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6 Key KPIs to Track to Make Killer Product Decisions

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I was 18 and it was my first ever attempt at a tech startup. The idea was ‘just ok’, a social chat engine that let you communicate the way you wanted to, through any medium, on a whim. The team was non-existent, funding was a pipe dream and the only experience I was bringing to the build was this notion that it ‘might’ do well. There was no lean approach, no minimal viable product, no market research, no regard for competitors. The vision to build this product was fuelled by my newly found appreciation of outsourced labour internationally. I was able to leverage top-notch designers and highly experienced developers to build this product. When it was complete a year later, it was a big, convoluted, bloated product with no users. Success came down to finding out exactly how to measure success or friction points of the product, but that was knowledge I was still yet to learn the hard way. Had I known about building lean, measuring success and friction points and iteration based on lessons 12 years ago, the product would have been completely different, I would have built a fraction of the end solution, for far less resources, and it might have even seen the light of day.

6 Key KPI's to track to make killer product decisions

Which Key Performance Indicators (KPI) should I track? It’s the very question that could determine how successful your product actually becomes.

While it’s nice to see 100,000 visitors arrive at your site and call it a successful day, in reality there’s danger lurking behind this logic. What good is 100,000 users if only a tiny fraction actually sign up, buy, or are retained?

The best part is, if you’re noticing these kinds of discrepancies, you’re already halfway to improving your product. Nearly all new product offerings require some kind of conversion lubrication, be it through design, the call-to-actions, psychology or incentives.

Tracking KPI’s arm you with the tools required to understand what is going on with your business, at any given time. Tracking the right KPI’s will supercharge your growth rate as you are able to act on friction points before they cost you too many missed opportunities.

There are hundreds of KPIs that can be tracked. There are only so many resources in your business and so many hours in a day, so it is best to focus on the most important KPIs. Here’s six KPIs that really can help you make the product decisions that will boost your sales to the next level.

 

1. Lifetime Value of your Customers

LIFETIME VALUE OF A CUSTOMER

The biggest asset you’ve got in your business is the ability to tap into your current customer pool. You want to do everything you can to optimise your customer lifetime value and convince them to continue to support your product.

You may have a little feedback from current customers that give you a feeling that you’ve hooked up with them, but you need to quantify this KPI in order to track it properly. Do this by multiplying the average sale per customer times the average number of times a customer buys every year . Multiply the results by the average retention time for your average customer.

 (Average Sale per Customer) x (Number of sales per customer yearly) x (Average retention time) = Lifetime Value of Customer

Using this quantitative tool, you can see clearly where you stand with your customers. It can show you how your acquisition and retention techniques are working so that you can tweak your offering or product to increase the lifetime value of your customers. You may think that a current campaign is cultivating the relationships, but if the KPI indicates that it isn’t, you can move in a different direction so that you can tap into this rich resource and bring new services or products to the customers who have already shown you support in the past.

 

2. Sales Revenue After Acquisition Activities

Sales Revenue After Acquisition Activities

Online sales can be an exciting field, but you need to track the numbers concerning revenue. The bottom line is that you’re here to make money and your sales revenue says a lot about the health of your acquisition strategies.

Do a cost benefit analysis for each area of your inbound activities. For example, if you have a blog and pay people to keep it going, make sure that it generates enough sales to warrant that expense. Common sense tells you this, but it takes crunching a few numbers to make a decision. Subtract your total revenue from inbound marketing (IMR) from your total sales (S) for the year to gauge your success in the area.

(Sales) – (Inbound Marketing Revenue)  = Sales Revenue After Acquisition Activities

 

3. Return on Investment for Acquisition Activities

Return on Investment for Acquisition Activities

This KPI expands on the previous one to help you determine your return on investment based on the amount you spend acquiring users to your product.

Using ROI measurements helps you unlock knowledge as to how hard your marketing dollar is working for you, and whether you should be pursuing specific channels due to their benefits to your product. Measuring Return on Investment is your Gross Profit minus your Acquisition Investment, divided by your Acquisition Investment again.

(Gross Profit – Acquisition Investment)
Acquisition Investment

 

4. Customer Acquisition Cost

Customer Acquisition Cost

Customer acquisition cost tells you how much each converted user (whether they’re signing up or purchasing) actually costs you. This is important because it can shed light on whether you’re spending too much to acquire a new user or a sale. To work out your Cost Per Conversion, divide your conversions over a period of time by the amount spend acquiring them.

(Acquisition Spend) / (Number of Conversions) = Cost Per Conversion

 

5. Traffic to Lead Ratio

Traffic to Lead Ratio

Traffic to your site is a huge consideration, but you need to understand where you are getting your traffic from to make the best decisions. It’s important to understand if you acquire more leads via organic search, social media, paid networks, media, blogging or directly, and that information will help you keep on top of how to increase traffic, through which channels, and drive up your conversion rate. To work this out, compare your total traffic over a specific period vs your total leads, and continue to meaure this over time to gauge movement.

Total Traffic over a Period : Total Leads Acquired

6. Lead to Customer Ratio

Lead to Customer Ratio

This one determines how soon you see money in the bank. You can work out how many potential leads you have per specific period of time and compare it to the actual customers or users you acquired. Alternatively, you can hone right in and find out how many semi-converted leads you have (such as those that started the signup or checkout process) vs those that converted.

Number of Leads : Converted Customers

There are endless KPI’s to track, and it’s important to understand exactly which ones can help you to translate success with your product. What works for one business, might not work for yours. Even more important, is to avoid measuring vanity metrics. That is, metrics that don’t tell you how your business is actually going, and are just nice numbers to look at.

What’s your go-to metric for overall success? Share it below!

~ Tomer Garzberg
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