Success metrics help you make good decisions by quantifying the performance of your product.
A success metric provides an objective measure of whether you are making progress towards your goals. This can be incredibly useful to keep people focused around what really matters and help you prioritise options.
However, choosing the right success metric is challenging. A single metric is naturally a simplified way to understand the complexity of your users and product.
This guide to choosing the right success metric explains the benefits of defining success metrics, how to define success metrics, and common pitfalls to avoid.
What is a success metric?
A success metric is the yardstick you use to measure the overall performance of your strategy, product or feature.
Success metrics complement qualitative goals that are inspiring and provide context about what you are trying to achieve.
Example:
Objective: Grow our user base
Success metric: Monthly Active Users (MAU)
They are the single best quantifiable measure of how your product is doing over time.
Each aspect of this definition is important:
- Single best - Any metric alone is one-dimensional and imperfect at measuring the full complexity of a product. But if you want a quick read with one metric, this is the one you choose.
- Quantifiable - this is something that you can count and put a number on.
- Measure of performance - it’s a signal of how things are going.
- Over time - it changes and this lets you make informed decisions.
You can create success metrics at the team or feature level:
- Team success metric - measures whether team is being successful over medium term (e.g. 1 quarter or 1 year)
- Feature success metric - measures whether an individual feature is successful
These are often the same metric, but sometimes it makes sense to pick a more specific success metric for a feature, if you know it is a key driver of the team’s success metric.
Why are success metrics useful?
Success metrics are important because they improve decision making. In particular they help you:
- Clarify the objective - pairing a qualitative objective with the right quantitative measure makes it clearer what you are trying to achieve.
- Tracking business performance - you can understand how the business is doing by establishing a baseline and looking at changes over time.
- Help prioritisation - success metrics act as a common currency to compare competing options.
- Understanding drivers of success - by seeing what drives changes in your success metric, you can start to understand what are the important things to get right.
How to define your success metric
There are a multitude of different numbers you could choose as your success metric, so how do you decide on the right one?
It helps to return to first principles.
Businesses are set up to maximise shareholder value - i.e. the valuation of the business.
Business valuation is usually a function of 1-2 headline financial metrics, which vary by industry and business model. Common examples include:
- Revenue
- Profit (or EBITDA)
- ARR (for SaaS; Annual Recurring Revenue is the amount of revenue you have from ongoing contracts that will be billed each year)
- GMV (for marketplaces; Gross Merchandise Value is the value of items being sold through the marketplace)
Your job is to make decisions that increase these headline numbers.
Leading vs. lagging metrics
The problem is that these headline numbers are lagging indicators. There is a delay between you taking action and seeing these numbers move. In addition it can be difficult to see your impact amidst the action of other teams.
You need a metric that is responsive enough to guide your actions day-to-day, and where you can see clearly the impact your team is having. But equally well that metric ultimately has to impact one of the key financial metrics.
The faster your metrics react, the quicker you can move. But if your metrics don’t predict business impact then they aren’t useful.
You need to find a leading metric which is both responsive, but also a direct driver of lagging business metrics that determine company valuation.
Steps to define your success metric
Laddering up from a leading metric to a lagging financial metric can seem complex. But the following 5 steps can help you find a useful success metric:
