Measuring value metrics in a product-led company is essential to drive impact and make sure the product works for its customers. In this article I discuss some criteria to use to define valuable metrics and how to determine if you are using the right metrics for your product.
Let’s start by reviewing the definition of a product-led company.
Characteristics of a Product-Led Company
A product-led company is one where the product itself is the primary driver of growth and customer acquisition. This strategy often involves creating a product that is so compelling and valuable that customers naturally spread the word and attract new users.
Product-led companies present these characteristics:
- Customer-Centric Focus: Product-led companies prioritize understanding and meeting the needs of their customers. They use customer feedback and data to continuously improve their product.
- Strong Product Vision: A clear and compelling product vision guides the company’s direction and inspires the team. Work is priorities based on Product Goals that are actionable and can be measured by value metrics.
- Product-Driven Marketing: Marketing efforts are focused on showcasing the product’s value and benefits, rather than traditional advertising and sales techniques. Often, product-led companies do not have a traditional marketing budget, instead they rely on their product to be the main driver of acquisition.
- Self-Serve Onboarding: New users can easily discover and start using the product without requiring extensive sales or customer support involvement.
- Viral Growth Potential: The product is designed to be shareable and easily spreads through word-of-mouth or network effect (the more people use it in your network, the more the product is valuable for you).
- Data-Driven Decision Making: Companies use data and analytics to measure product performance and make informed decisions about product development and strategy.
- Cross-Functional Collaboration: Product, marketing, sales, and other teams work closely together to ensure a cohesive product experience and effective go-to-market strategy
By focusing on creating a product that customers love and can’t live without, product-led companies can achieve rapid growth and long-term success.
Examples of Product-Led Companies
Slack
Known for its intuitive interface and seamless collaboration features, Slack has grown rapidly through word-of-mouth and a focus on customer satisfaction.
I remember, several years ago, my team proposed to adopt Slack. It was a new tool that many of us had never heard of. We gave it a try, and soon, everyone around us was using it. Slack didn’t have to spend a single dollar for marketing. Network effect and word-of-mouth sparked it adoption.
Dropbox
Dropbox’s ease of use and free tier allowed it to quickly gain traction and become a popular cloud storage solution.
Zoom
Zoom’s user-friendly video conferencing platform became essential during the COVID-19 pandemic, driving significant growth. Because Zoom makes sense to be used by 2 people (at least), it leverages network effect. The more people were using Zoom, the more others were adopting it.
How to define valuable metrics
To identify and define metrics that are valuable for your product, I recommend following this process. It’s 3 simple steps, but they provide focus on what really matters and help to avoid the common traps with metrics: either defining too many, or focusing on vanity metrics.
So, here are the 3 steps:
Step 1: Be clear on you objective(s)
Without a clear objective that is actionable it is hard to drive product development or to keep the focus on what really matters. Start by being clear on your objectives. A useful way to do so is to define your Product Goal – this should be timebound (typically within the next 3-6 months) and actionable (this allows you to measure progress).
Step 2: Identify customer and business outcomes
Products should deliver outcomes. Full stop. Without outcomes, the product falls in the “delivery gap”: it may be a piece of artistic engineering, but if no one finds value in it, it is pretty much useless.
So, start your work by being clear about the problem you want to a solve for your customers (or end-users). One you have this clarity, define both the customer outcomes and the business outcomes you want to deliver.
Step 3: Define metrics that drive the outcomes
For each customer outcome that you identified in the previous step, define one metric that you can measure to validate that your product is delivering on that outcome. See the connection here? Outcome –> metric. This ensures that your metric is valuable, and not vanity or connected to nowhere.
When you have defined your customer metrics, continue the process with business outcomes. Notice that I prefer to start with the customer outcomes because, in my opinion, if a product is not delivering value to its customers, it is pretty much useless to measure business outcomes (there is no business without happy customers).
Difference between value and valuable metric
Value and valuable metric are related concepts, but they have distinct meanings:
Value refers to the perceived worth or usefulness of something. In the context of business, it often relates to the benefits or outcomes that a product or service provides to customers.
A valuable metric is a quantifiable measurement that provides insights into the value that a product or service delivers.
(I have discussed these concepts in another article on product metrics)
These metrics are designed to help businesses make informed decisions and improve their performance. To summarize the key differences:
- Abstract vs. Concrete: Value is an abstract concept, while a metric is a concrete, measurable quantity.
- Subjective vs. Objective: Value can be subjective, depending on individual perceptions, while metrics are objective, based on data and calculations.
- Goal vs. Tool: Value is often a goal or desired outcome, while a valuable metric is a tool used to measure and track progress towards that goal.
In summary, a valuable metric is a tool that helps you measure and understand the value that your product or service provides. It’s a way to quantify the abstract concept of value and make data-driven decisions.
The problem is that, often, metrics are confused with vanity metrics.
How to avoid Vanity Metrics
Vanity metrics are metrics that look impressive but don’t provide meaningful insights into the actual performance of a product or initiative.
Here are some strategies to avoid them:
Align Metrics with Product Goals: Ensure your metrics directly contribute to your overall business objectives. This helps you focus on metrics that drive real value. This assumes that you have properly defined you Product Goals, so that metrics can measure the outcomes delivered.
Consider Customer Behavior: Focus on metrics that reflect how customers actually use your product. Avoid metrics that are easily manipulated or don’t provide insights into real-world behavior. One way to do is: be clear about what customer outcomes your product delivers, and then establish metrics that are tied to these outcomes.
Avoid Metrics That Are Easily Manipulated: Be cautious of metrics that can be inflated or deflated through artificial means, such as social media followers or website traffic. Also, these metrics may not be directly connected to value (e.g. having more website traffic when nobody signs up for your service).
Look Beyond Superficial Metrics: Don’t be fooled by metrics that are easy to track but don’t provide meaningful information. These may be vanity metrics. Instead, focus on metrics that measure the impact of your product or initiative. Hint: to do this, start by clearly defining the customer and business outcomes you want to deliver.
Consider the Context: Evaluate metrics in the context of other relevant data. A high number of followers, for example, may be impressive, but it’s more meaningful when considered in conjunction with engagement metrics.
Ask “So What?”: For each metric you track, ask yourself, “So what does this really mean for my business?” If the answer isn’t clear, it might be a vanity metric. Again, the metric should directly connect to an outcome you want to deliver to your customers and business. If your “So What?” question cannot provide a clear answer on the outcome, it’s very likely that you are measuring the wrong metric.
Hopefully, by following these guidelines, you can avoid falling into the trap of vanity metrics and focus on tracking metrics that truly matter for your product’s success.
Determining the Value of a Metric
A valuable metric is one that provides actionable insights and aligns with your overall business goals.
Here are some key criteria to consider:
- Alignment with Business Objectives
• Relevance: Does the metric directly contribute to your company’s strategic objectives?
• Impact: Can changes in this metric significantly affect your business’s success? - Measurability and Reliability
• Data Availability: Can you collect accurate and consistent data for this metric?
• Calculation: Is the formula for calculating the metric clear and reproducible? - Actionability
• Insights: Does the metric provide meaningful insights that can lead to informed decisions?
• Intervention: Can you take concrete steps to improve the metric if it’s not performing as desired? - Relevance to Customers
• Customer Value: Does the metric reflect the value customers derive from your product or service?
• Customer Experience: Can the metric help you improve the customer experience? - Simplicity and Understandability
• Clarity: Is the metric easy to understand and communicate to stakeholders?
• Interpretation: Can the metric be interpreted without extensive explanation?
Examples of Valuable Metrics
- E-commerce: Conversion rate, average order value, customer lifetime value
- Marketing: Cost per acquisition (CPA), return on investment (ROI), click-through rate (CTR)
- Product: Customer satisfaction, net promoter score (NPS), user engagement
- Finance: Revenue growth, profit margin, debt-to-equity ratio
Additional Tips
- Prioritize: Focus on metrics that have the greatest impact on your business.
- Monitor regularly: Track metrics over time to identify trends and patterns.
- Experiment: Test different metrics to find the ones that provide the most valuable insights.
- Consider context: Analyze metrics in relation to other factors, such as industry benchmarks or economic conditions.
How to decide if a value metric is actionable?
A valuable metric is actionable if it directly influences your ability to make decisions and take steps to improve your business.
Here are some key factors to consider:
- Clarity and Specificity:
Clear Definition: Is the metric defined in a way that is easy to understand and measure?
Specificity: Does the metric provide a clear and focused measurement of a particular aspect of your business? - Relevance to Goals:
Alignment: Does the metric directly relate to your business objectives and goals?
Impact: Can changes in this metric significantly affect your business’s success? - Timeliness:
Frequency: How often is the data for the metric updated?
Timeliness: Is the data available in a timely manner to inform decision-making? - Granularity:
Level of Detail: Does the metric provide sufficient detail to identify areas for improvement?
Customization: Can the metric be customized to meet your specific needs? - Actionability:
Intervention: Can you take concrete steps to improve the metric if it’s not performing as desired?
Decision-Making: Does the metric provide the information needed to make informed decisions?
Examples of Actionable Metrics
- E-commerce: Conversion rate, average order value, customer lifetime value
- Marketing: Cost per acquisition (CPA), return on investment (ROI), click-through rate (CTR)
- Product: Customer satisfaction, net promoter score (NPS), user engagement
- Finance: Revenue growth, profit margin, debt-to-equity ratio
Additional Tips
- Set Clear Targets: Establish specific, measurable, achievable, relevant, and time-bound (SMART) goals for each metric. See the Product Goal article for more info.
- Monitor Regularly: Track metrics over time to identify trends and patterns.
- Analyze Root Causes: If a metric is not performing as expected, investigate the underlying reasons.
- Experiment: Test different approaches to see which ones have the greatest impact on the metric
By selecting actionable metrics and using them effectively, you can make data-driven decisions that drive your business forward.