Optimizing for the Right Metrics
KPIs. Driver metrics. Leading indicators. Lagging indicators. LTV. ROI. ROAS. CAC.
As a proud math nerd, I have spent most of my career focused on how to increase business value through measurement. We tell ourselves we’re serving customers by measuring their behaviors and launching experiences they like, defined by their usage. Yet, we measure with business-centered metrics, like revenue and conversion rates, not customer-centered metrics. We tell ourselves it’s because customer metrics like NPS scores are lagging indicators and hard to isolate. So we create complicated financial models for LTV and similar metrics in service of making business decisions, with the assumption that customers paying for something means they are happy and satisfied.
While it is true that customer-centered metrics can be hard to measure, I’ve learned it’s contradictory to be a customer-first product measured with business-centered metrics. At a travel company I worked with, I reminded my colleagues that our conversion rate was a reflection of people’s desire to book direct for their loyalty points, not necessarily a good experience. Data measures when someone viewed the page or used the feature, not that they liked the experience.
I’m not suggesting measuring revenue isn’t important. I’m just (currently) in the camp of people to suggest revenue is also a lagging indicator of business health. Choose metrics to focus on that measure if we’re meeting customer needs, and the revenue will follow. Happy customers will keep coming back.
I recommend choosing metrics to optimize that measure what customers want from you, not what you want from your customers; though, it’s a sign of excellent product-market fit when the two align. For an entertainment company (Netflix, Spotify, Audible), you may choose to optimize streaming time. For a recipe company (Epicurious, NYT Cooking), you may choose to optimize recipes saved. For my Pantry app, I might optimize for meal plans generated.
In order to truly be a customer-first company, don’t forget to use customer-centered metrics.