Three Key Metrics

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There are lots of metrics which you need to track, understand and build on to run a good business. Typically there is too many, which is why I suggest trying to find three key numbers to know if it’s really working.

This started when Mike Cannon-Brookes was on the Pollenizer advisory board and pushing us for regular metrics, but keep it simple. “Just give me three numbers which means you’re going forward.” I’ve pushed the companies I’ve worked with on the same point and ended up adding the three metics to my version of the lean canvas.

Why 3?

The reason three is a good number is because it can’t possible include everything you need to track. You need to pick those that really matter. Even just asking this question is a great way to know if you are tracking a vanity metric or a real number.

The other reason why 3 is good, is it makes you find a simple way to communicate progress which is important for team, investors, spouses and yourself. Three is small enough to put in an email subject line to ensure that you can keep everyone up to day, and it’s also simple enough to keep everyone aligned.

Which 3?

This is the harder part. The rule should be that if this number improves, your business is substantially working. It should be an indicator of real value. Something substantial that can’t be faked, crammed for or easily replicable. It’s a number that should get you genuinely excited.

When you first start a business it’s easy, and maybe important, to look for any sign of interest to show some validation of the risk you’re taking. Friends telling you it’s a great idea, retweets, page visits, sign ups, facebook likes, PR mentions. All these numbers give you a short term high, but they are not a foundation of a business. They can’t be built on.

Don’t worry if one of the numbers is going to be zero for a while. That’s fine. Things like renewed customers take time, so you can track other numbers which are building towards that and you may change the numbers you track over time. Just be aggressively honest with yourself to say is this a transitionary number or does this number actually, really, really mean that it works.

Here are some of the things I look for in a good metric.

Value To Your Customer

One of the best metrics to track is the actual value you create for your customer. I often say that you need to create 10x value for new customers of a new product which means if the total cost of the product (including price, risk, time, etc) is $100 then you need to add $1,000 of value to get them to use it. So understanding the value your customers get and measuring it is obviously a great metric to track. Not always easy, but critical to at least ask and a lot of time it’s actually possible.

Actioned confirmation of value

I like numbers which mean that there has been clear acknowledgement by a real customer that they got value out of the product. Unfortunately this doesn’t just mean a sale. (Though I love sales). A sale may mean that you’re good at sales. It doesn’t mean that you created value that the customer appreciated. The second sale does. Or a renewal does.

For a free product, it needs to be serious usage to show that people are really using your product. Typically this means usage multiple times over a sustained period. Zynga uses 90 day actives. Who has been active every month for three months.

Externally Valued

Another test is would that number be meaningful to someone outside the organisation. i.e. an investor. This can also be looked at as sellable value – if you had a bunch of that metric would someone buy this. People buy contracts with customers or seriously engaged users that are in some way locked in.

 

Examples of Good “3 Metrics”

  1. Renewed paying customers.
  2. People used the product three days in a row.
  3. Gross profit from renewed customers.
  4. Conversion of trial to paid – means they saw the value and want to commit to it.
  5. Money saved for your customers.
  6. Time saved for your customers.
  7. Money made for your customers.

Put your three metrics in the comments and I’ll let you know what I think.

Here is some other good reading/watching on this:

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