What KPIs Should a Product Manager Have?
Having the right KPIs for a product manager can lead to business growth, a more engaged team and a faster pace of learning. Get your KPIs wrong and you’ll focus on the wrong priorities, your team will loose sight of the North Star and your pace of execution will grind to a halt.
A friend asked me last week what KPIs she should set for her product managers. I’m going to break her question down into a set of principles startup founders and CEOs can use to help their product managers achieve their full potential. The principles are based on my first-hand experience in startups of 10 to 150 people, from idea stage to scale-up stage.
Principle #1: Align behind a North Star
Your product manager and her team should be working towards impacting one metric that drives your North Star
Your North Star metric guides your whole team towards your company goals. It’s a behavioural metric that measures how your customers would behave if they really loved your product.
Your product manager and her team should be working towards impacting one metric that drives your North Star. Most North Stars are activation metrics (e.g. Facebook’s famous 10 friends added in the first 7 days) or retention metrics (e.g. Hubspot’s weekly active teams).
Your product team/product manager’s KPI should reflect an action that your users will take that will drive your North Star. For example:
- North Star is weekly active users
- Product KPI is % of weekly users using social features
Principle #2: Choose Behavioural Metrics That Predict Retention
Value delivery is a point at which your user gets value from your product
Retention is a laggy metric. I consumer products you might look at 30 day retention, in B2B products you’re typically looking at 12 month retention.
We can’t afford to wait 30 days to see what impact changes to our product have had. To address this problem, we need to find a metric that:
- Is behavioural - like a read, a share, creating content, uploading a photo, completing a core loop, represents an action or actions your user takes in your product
- Represent value delivery to the user
- We know (via analytics or interviews) or we hypothesise are predictive of retention.
Example of behavioural metrics that should predict retention:
| Sector | Metric | Rationale |
|---|---|---|
| Generic | % of users completing core loop each week | The core loop is where value is delivered to the user, so we’re going to get as many users experiencing it as possible |
| B2B SaaS (e.g. Calendly) | % of users booking >3 meetings each week | We have a hypothesis that users booking more than 3 meetings each week will retain better, we’re going to do all we can to increase this % |
| B2B Consumer (e.g. Uber) | % of users waiting >10 minutes for a cab | We have a hypothesis that users waiting >10 minutes for a cab are likely to churn, so we’re going to do all we can to reduce the % of 0. |
Examples of metrics that are not behavioural that shouldn’t be set as product managers’ KPIs:
- Retention
- LTV
- NRR
Retention, NRR and LTV are super important. But they are laggy indicators. We’re trying to find the predictors - the proxies - of retention.
Be wary of metrics like these that are behavioural but may not represent value delivery to the user:
- Clicks on promotions
- Clicks on buttons like book demo
In each of the examples above, the product we deliver to the users influences the metric and the metric represents value delivery to the customer.
Principle #3: Allow Your PM to Set Her Own Metrics
Once you’ve identified the metric you believe to be predictive of retention, you need to focus 100% of one team’s team on that metric.
In this simplified squads org chart below, this means that there are max two predictors of retention. Product 1 owns one, Product 2 owns the other.
We absolutely do not want several different metrics - we want to focus on one hypothesis at a time.
Principle #4: Allow Your PM to Set Her Own Metrics
If you have an experienced PM, setting her KPI for her will negatively impact her sense of autonomy and meaning.
Avoid the trap of moving quickly by setting your PM’s metrics.
If you have an experienced PM, setting her KPI for her will negatively impact her sense of autonomy and meaning.
The secret is to manage by context - make sure your product manager has all of the context they need relating to:
- Your company milestones (e.g. raise Series A by June)
- Your company OKRs
- Your overall business strategy
- Feedback from customers (a PM should be deeply involved with customer feedback)
You, or your CPO/head of product, will need to support your PM to select the right metric for their product.
If you have a junior PM, you’ll need to coach them to help them arrive at a KPI that is achievable and useful. Allowing inexperienced team members to struggle to set their own KPIs without adequate support is likely to erode their sense of control over their environment.
Principle #5: Only Choose Metrics Your PM Believes They Control
People need to have goals that they can positively control.
There are two reasons to focus on metrics that your product manager and the team believe they are able to influence. I usually ask teams and individuals if they believe they are >95% able to control the KPI.
The exact percentage depends on the psychology of the individual, but few people will thrive in an environment in which they have little influence over their outcomes. For this reason, people need to have goals that they are able to positively control. They need to see how their actions, their struggle, their late nights, their passion, deliver a result.
The second reason to focus on goals that your team control is that your mission as a startup is to learn which small percentage of your tactics actually deliver the big wins.
A startup I worked with recently wanted to improve their CAC:LTV, but no one in the team could explain what their CAC was, what their LTV was or how they might impact either one. So we broke the problem down into a series of goals:
- Positive impact our CAC:LTV
- Learn how to impact our LTV
- Learn how to measure retention
- Learn which features drive retention
Once we learnt which features drove retention, we were quickly able to drive LTV.
Principle #6: Preference Clarity Over Completeness
It’s tempting to assign multiple KPIs to a product manager or product team. Sometimes this is needed (e.g. in a marketplace) but most of the time have too many metrics leads to a lack of clarity. There are few things more powerful than a smart, motivated product manager who has extreme clarity on her goals.
We saw this clearly at my previous startup where one of the product teams chose customer conversion from demo as their KPI. Before agreeing on the metric there was lots of discussion like what if all we do is deliver a great demo experience, what about retention and so on. Within months of setting the metric, the product team was more focused and successful than they had been for years.
Looking for some more help?
I help founders align their teams behind a high-growth product strategy. Choosing north start metrics and setting growth and product metrics is one of the highest impact parts of the course.
Photo by Jason Goodman on Unsplash