The secret formula to building effective KPIs for any business 🎯

Photo by Charles 🇵🇭 on Unsplash

If you’re a business manager, technical manager or a product manager, chances are that you base every decision on a set of performance metrics— KPIs or Key Performance Indicators to the most of us.

As a young product manager, I recall my managers firmly drilling into me two actions to be performed before picking up any project.

1. Clearly defining the problem statement
2. Establishing specific and measurable project metrics

Having worked with defining performance metrics for a number of different projects in the e-commerce and fintech space, I always assumed that every factor that goes into listing KPIs can be defined by an individual only after achieving an intimate understanding of the project sector and project scope. With newer projects and greater product management experience, what became apparent to me was that most technical products function on a primary set of basic key variables with a few success metrics that play up the nuances of the product & the market.

I had the opportunity to consolidate 3 years of learning in an information packed 3 hour session with

Aniket Behera

— former director of product at

Hotstar

and Co-Founder at Zoomo.

As product managers, a trait that is highly prized is analytical ability. The ability to look at a problem statement analytically and make sense of the chaos is every product manager’s bread and butter. However, if you’ve been in the product game for long enough, you probably know that this highly prized trait is also an Achilles heel. As analytical and detail oriented personalities, it’s very easy to over analyse any scenario and end up defining key metrics for every tiny detail which ultimately doesn’t compound to any tangible product improvement. A sort of analysis paralysis if you will.

Average PMs have many performance KPIs.

Good PMs have few performance KPIs

Great PMs have a single performance KPI

~

Aniket Behera

As a structure oriented person, this sounds contrary to what works in the real world. Go ahead and read the rest of this post and I’m sure that you’ll come around just like I did.

Now to get down to the fun stuff — the formula that you can use to define your product or organisational KPIs.

As with any mathematical formula, let me start by defining functions.

CEO KPI — The single variable that defines the CEO’s company’s vision

Constraint KPI — Variable value that places a limit/control on a specific KPI

Trust KPI — Variable that is not to be considered for the formation of performance metrics i.e “trust” the CEO to take care of this metric.

Now that we are aware of the elements that we’re working with, let’s proceed to put them together.

Step 1:

Define the CEO KPI — The single business metric that epitomises the current business strategy. An exercise that can help you ascertain this metric is to think of yourself as the CEO. Under the current business strategy, if there was only one performance metric that you will have to place at the top of your mind everyday, what will it be?

Great! now that you have your single most important metric, add two KPIs to it to the first part of your equation to make your metric quantifiable.

• Constraint KPI to ensure that your metric is numerically measurable.
• Trust KPI to ensure that the organisation’s priorities are aligned. This is an extremely important KPI and a good CEO would ensure that this KPI is well communicated to every level of the organisation.

Essentially, the trust KPI directs your teams towards their key areas of focus and asks of them to trust you with a particular metric so as not to affect their existing priorities. Eg. Many CEOs ask their product teams to concentrate on acquiring and retaining their customers without necessarily worrying about customer revenue as they plan to raise capital through investment at a later stage i.e. “trust” him/her with the company revenue and instead focus on product refinement and customer acquisition.

Step 2:

Break the organisation down into functional teams and define performance KPIs to track the progress of the teams towards their individual objectives. Adding a constraint KPI to every team’s functional objectives is a great practice but it’s understandable that this is not always possible.

Step 3:

Define the instrumentation or means of attaining your operational objectives. Many a time, this is through analysis of the customer’s journey, analysis of data events and A/B testing of new features prior to a major release.

If you go through this exercise carefully,

Step 1 + Step 2 + Step 3 = Organisational business KPIs

In order to better illustrate this formula, let’s take a crack at framing India’s fastest unicorn —

SwiggyBytes

’ KPIs for their recently launched concierge service “Swiggy Go” by running through the 3 steps of the formula.

Alright, here we go 🚀

Step 1:

CEO KPI — Number of orders placed by an existing Swiggy customer within 4 weeks of their first Swiggy Go order. Can be loosely classified as NPS.

Constraint KPI — Cost of customer incentive programs.

Trust KPI — Gross margin.

Step 2:

Operations team KPIs

• Delivery fulfilment time.
• % of completed deliveries.
• % of complaints.
• Customer satisfaction levels — Hard constraint.

Merchant acquisition team KPIs

• Number of merchants that have “x” orders accepted in the first month after on-boarding.
• Number of merchants that have “x” orders fulfilled in the first month after on-boarding.
• Minimum acceptable take rate/churn rate — Hard constraint.

Customer acquisition team KPIs

• Number of customers who place an order within first week of registration on the Swiggy platform.
• Acquisition cost per customer.

Product/Customer retention team KPIs

• Number of customers who place an order within six weeks of placing their first Swiggy Go order.
• Number of customers who place an order within four weeks after the successful completion of “x” customer incentive program.
• Ratio of the customers to which product recommendations are displayed to the total sales obtained through product recommendation channel.
• Total number of app crashes — Hard constraint.

Rider team KPIs

• Number of successful Swiggy Go deliveries within six weeks of volunteering for the program.
• Average ratings of total serviced customers.
• Ratio of the number of deliveries made in a quicker than average time-span to the total number of deliveries.

Step 3:

Setup of the instrumentation for collection & analysis of data events:

• user_id
• time_to_fulfilment
• customer_satisfaction
• restaurant_id
• app_crash_data
• rider_id
• customer_incentive_program_id
• form_id
• payment_id

Once data events are captured, tools such as

Segment

,

Mixpanel

& Redash can be utilized to compile, categorize and display the data in an easy to consume dashboard on a web app or using

Google

data studio.

There we go — three steps, one formula. Give it a whirl and let me know if it helped you down below or at hi@marvindiaz.co!