Introduction
High performance organizations differentiate themselves by being razor focused on what's important for long term success and sustained competitive advantage.
Objective and Key Results (OKRs) and Key Performance Indicators (KPIs) are what enable companies to develop this focus and prioritize ruthlessly. OKRs and KPIs also help in communicating shared goals to align teamwork and drive accountability.
Example: Revenue-Focused OKR
Let's say your company's objective is to achieve $1 billion annual recurring revenue (ARR) by the end of this financial year. Therefore, one key result for the first quarter could be to achieve $250 million in subscription revenue.
Formula: Revenue = # of customers × average revenue per customer
Key KPIs to track: Number of customers and Average revenue per customer
Objectives can be abstract such as be the market leader, be the most respected company, be the most trusted company, and be the most customer centric company. However, Key Results and KPIs should be specific and measurable. Objective is long term whereas Key Results are time bound and specific.
💡 Key Insight: OKRs and KPIs provide you the superpower to be razor focused on what matters the most for your company and your customers and avoid distractions.
Expected Outcome from This Blog
"If you can't measure it, you can't improve it." - Peter Drucker
As a data driven product manager, I strongly believe in Peter Drucker's quote. When I started as Product Manager, I naturally tried to come up with a list of important things to measure and improve. I read a lot of blogs and articles on product KPIs, which lists KPIs like DAU, MAU, churn rate, revenue, ARR, NPS etc but I struggled to find an article which provided me a framework to think about the most important KPIs for my product.
Working in the B2B product space made this challenge even worse because most of the generic KPIs are for B2C products and don't translate directly to my industry and product.
🎯 Goal of This Blog: Help product managers think about KPIs and OKRs in a structured way and apply the framework discussed in this blog for different products and industries (even niche ones).
Foundation Framework
Traditionally organizations' north star goal is to maximize shareholder's value. Organizations generate shareholder value by capturing part of value they create for the customers.
Our job as product managers is to create value for customers by creating products which remove customer's pain points and delight customers by getting their jobs done. Customers in turn will pay for the product based on their willingness to pay for the perceived value the product provides.
Value Creation and Value Capture Framework
As product managers our focus should be to continuously deliver more values to the customers which helps in developing sustainable competitive advantage for the company and remaining in the high value creation and high value capture quadrant (#2). In this blog I will share framework to build OKRs and identify KPIs to achieve objective of being in quadrant #2.
Deep Dive on Identifying KPIs to Drive Key Results
Value Creation
A successful product company creates value for customers by solving their pain points and helping customers get their jobs done. The more important the job is and the more underserved the customer needs are the more value the product creates for the customers.
Mapping out the customer journey and evaluating critical product capabilities throughout the customer journey helps us identify product KPIs for customer value creation.
Generic Customer Journey and Critical Product Capabilities:
1. Register/Install/Deploy the Product
This is the first step in customer journey. Successful products make this step friction free and super easy for customers.
Key KPIs:
- • % of successful install
- • % of users completing registration
- • Dropout rate in registration process
Additional Metrics:
- • Time taken to complete registration
- • Steps needed to complete registration
- • # of support cases for registration
2. Initial Configuration of the Product
This is more common for enterprise B2B products. After initial installation of the product customers need to do initial configuration of product before they can start using it.
Key KPIs:
- • Time taken to complete initial configuration
- • Steps needed for initial configuration
- • # of support cases for configuration
Success Metrics:
- • # of customers who completed configuration / # who downloaded
- • % of successful initial configuration
- • Dropout rate during configuration
3. Operation
This is one of the most critical phases of customer value creation. This is where detailed understanding of customer's jobs to be done and the full process for how to get it done becomes important.
Availability
Unless services that the product provides are available customers can not use the product.
Measured as: x.9s availability (99.99% as 4.9s)
Reliability
Ability of the product to perform intended function consistently and correctly.
Key difference: A service can be available but not reliable
Metrics: Error rates, # of support tickets for specific features
Performance
Performance KPIs provide insights into whether the product meets customer's performance needs.
Cloud Storage: IOPS, throughput, latency
Backup/Recovery: Recovery point objective, recovery time objective
Social Media: Time to upload, submit comment, share post
Scalability
Allows systems to adapt to growing needs to meet growing demand.
Metrics: Transactions per second (TPS), capacity (GB, PB)
Usability
How easy the product is to operate. Should cover effectiveness, efficiency and satisfaction.
• Completion rate • Number of errors • Task time
• Task clicks • Task level user rating and satisfaction
Supportability
- • Mean time to resolution
- • Version adoption
- • Time/steps to upgrade
- • % of successful updates
Security & Privacy
Fundamental customer needs mandated by government data privacy laws and critical buying criteria.
Total Cost of Ownership (TCO)
Customer evaluates product on perceived value vs TCO, not just product cost.
Cloud Storage: $/GB
Advertising: Cost per acquisition, cost per conversion, customer acquisition cost
Value Capture
A lot of organizations try to maximize value capture and focus on profit formula for the business. As product managers we should look at value capture through Product adoption funnel:
Product Adoption Funnel Framework
1. Awareness
This is the top of the product adoption funnel.
Key KPIs:
- • Product impressions
- • Website traffic
- • Search volume data
- • Product awareness survey
Engagement Metrics:
- • Social media engagements
- • Lead generation
- • Product mentions
2. Interest
Once a potential customer becomes aware of your product and its value proposition then the customer may decide to further explore or try the product.
Exploration KPIs:
- • # of downloads
- • # of queries received
- • # demos
- • # of POCs
Success Metrics:
- • POC success rate
- • # of beta customers
- • Beta success rate
- • # of deals in pipeline / $ in pipeline
3. Acquisition
In this phase a potential customer converts into a real customer of the product.
Key KPIs:
- • # of customers
- • Segmentation of customers based on geography, use case and scale
4. Activation
There is a subtle difference between acquisition and activation. Some customers download and install the product but don't use it. This signals that the product may not be meeting the customer's needs.
Key KPIs:
- • Daily active users
- • Monthly active users
- • % of active user
- • # of inactive customers - shelf ware
5. Monetization
Monetization refers to how a product is generating revenue for organization.
Revenue KPIs:
- • $ revenue
- • Customer lifetime value
- • Annual recurring revenue
- • Monthly recurring revenue
- • Average deal size
Sales KPIs:
- • Average % discount
- • Win loss ratio/Close ratio
- • Cart abandonment
- • Cost per acquisition
- • Pipeline conversion rate
- • Average length of sale
6. Retention
Retention metrics show repeat customers. A low retention rate might be a signal of poor customer experience.
Satisfaction KPIs:
- • Net Promoter Score (NPS)
- • Customer Satisfaction (CSAT)
- • Churn rate
- • Referrals
Loyalty KPIs:
- • # of repeat customers
- • % of repeat customers
- • Retention rate
📈 Reference:
If you are focusing on growing and scaling your product it is recommended to focus on strengthening the product adoption funnel from retention to awareness (bottom to top) and not in reverse order (top to bottom). Unless you have a good retention ratio, acquisitions processes and monetization processes increased awareness will just lead to higher number of inquiries and low conversion rate.
Closing Thoughts
I hope by going through each phase of value creation, customer journey, value capture and product adoption funnel you can adapt this framework to your specific industry and product.
Not all KPIs are equally important therefore identify the most important objective for your product and corresponding KPI.
Please do let me know your feedback and comments about the framework discussed on the blog.
Further Readings and References
Following articles and books helped me understand OKRs and KPI and come up with this blogs. Idea shared in this blog comes from several books and articles which are mentioned below. I highly recommend reading following books and articles:
📚 Recommended Books
- • Measure What Matters by John Doerr
- • Strategy for Start-ups by Joshua Gans, Erin L Scott, and Scott Stern
- • The Innovator's Dilemma by Clayton M. Christensen
- • Decode and Conquer: Answers to Product Management Interviews by Lewis C. Lin
- • The Lean Product Playbook by Dan Olsen
- • Hooked: How to Build Habit Forming Products by Nir Eyal and Ryan Hoover
📄 Key Articles
- • Know Your Customers' "Jobs to Be Done" by Clayton M. Christensen, Taddy Hall, Karen Dillon, and David S. Duncan
- • Reinventing Your Business Model by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
🎓 University of Southern California Marshall School of Business MBA Classes
- • BAEP 557 - Technology Commercialization by Prof. Pai-Ling Yin
- • MKT 543 - Market Demand and Sales Forecasting by Prof. Sivaramakrishnan Siddarth
- • MOR 564 - Strategic Innovation - Creating New Markets by Prof. Violina Rindova
- • MKT 536 - Pricing Strategy by Prof. Shantanu Dutta