Managing by Metrics

Customer needs, technology, trends, and competition shift almost daily with Internet products. To successfully manage an Internet product, you must constantly monitor its vital signs (a.k.a. metrics). This requires integrating metrics into your product development and management process.

Managing by metrics is not easy, especially for a company that is not focused on metrics or accountability. This article provides some tips on how to get started.

• Clearly define your product metrics.
• Get buy-in for the metrics from management and the product team.
• Build accountability in your team for hitting goals.
• Regularly track and report on progress.
• Reward your team for hitting goals.

CORE PRODUCT METRICS

Financial. Financial metrics are the most common and undisputed metrics used to manage a product. The revenue, costs, and profits associated with a product determine how the product is contributing to the financial security and growth of a company. See “Developing a Pricing Strategy: Part 1” for more on how to measure and manage your financial metrics.

Customer satisfaction. As I wrote in last week’s article, “Linking Customer Satisfaction to Profitability,” “successful companies realize that the key to profitability is satisfied customers — everything else is academic.” As a product manager, you should religiously measure your customers’ satisfaction. Common customer satisfaction measurements include survey results, retention rates, and customer service inquiries.

Operations. Operational metrics include server uptime, speed of delivery, and inventory availability. How a product performs in relation to these metrics directly correlates to customer satisfaction and revenue.

When the system is down or inventory is not available, you potentially lose the transaction revenue. Customers who have a poor experience may not return and move to a competitive product, potentially taking their friends with them. This creates a nice example of viral marketing gone wrong.

Marketing and sales. For most Internet products, the largest cost (fixed or variable) is customer acquisition. It can easily take six months to simply recover the acquisition cost for a given customer after the cost of advertising, deploying a web site, and sales commissions. To manage your costs, you need to keep a close eye on conversion rates and acquisition costs.

MANAGING METRICS

Assign metrics. As a product manager, you need to have ownership of the metrics associated with your product. To help you manage the dozens of numbers, assign ownership for groups of metrics to the individual or team who has the most direct impact on those metrics. For example, your marketing manager could be accountable for managing conversion rates, customer acquisition costs, and customer satisfaction measurements.

Develop quarterly goals. A product team should set quantifiable quarterly goals that push the group to aggressively improve the product. Goals should be mutually agreed upon, and each group member should walk away with a metric that he or she can own. For this to be successful, you should get approval to assign goals from each team member’s direct manager.

At the end of each quarter, plan a meeting to review the team’s performance. Even if you hit all your goals, take some time to reflect.

• What went well this quarter?
• What could we have done better?
• How could we have minimized the risk of not hitting our goals?
• Are the defined metrics the best measure of our success?
• What are our goals for next quarter?

Gather metrics regularly. To effectively keep track of your product metrics and to hold team members accountable, you should ask team members for weekly updates that include the most current numbers and what steps should be taken if these numbers fall below forecast. These updates should be sent to all members of the product team.

Make metrics visible. Keep everyone informed by distributing a summary of your weekly updates to the rest of the company. The company needs to be warned of any risks and to be able to share in the celebration of your victories.

Next week, ideas for how to build an internal product newsletter…