Imagine stepping into the vibrant chaos of a new company, where your mission is to review and refine the Key Results set for your team. If you excel, you'll earn the leadership's admiration. Fail, and it might signal that you don’t grasp your leadership role.
The Challenge for Product Management
When joining a new company, product leads and executives face a common challenge. At junior levels, metrics and key results are dictated by leadership. However, in senior roles, you're expected to offer insights on key focus areas.
If you're adept at your job, you likely understand the broad array of metrics. The true challenge lies in selecting the right metrics for your product. These are the Strategic Performance Indicators (SPI).
Understanding Strategic Performance Indicators (SPI)
SPIs are not a single metric but a collection that provides a comprehensive view of the product. Mastering these metrics is difficult due to several reasons:
- Context Dependency: A metric beneficial for one product might be detrimental for another. For instance, time spent is valuable for an engagement-focused product like Facebook but counterproductive for a productivity tool like Superhuman.
- Temporal Relevance: A great metric one year might be irrelevant the next. What was crucial in 2022, like growth rates, might be replaced by profitability and cost savings in 2024.
Key Variables for Useful Metrics
To master SPIs, consider four key variables that determine a metric’s relevance:
| Variable |
Category |
Subcategory |
Details |
| Product |
Stage |
Early Stage |
Focus on Product-Market Fit (PMF) |
| Product |
Stage |
Early Stage |
Identify initial user needs and satisfaction |
| Product |
Stage |
Early Stage |
Measure user adoption and engagement |
| Product |
Stage |
Late Stage |
Focus on growth or profitability |
| Product |
Stage |
Late Stage |
Track revenue growth and market penetration |
| Product |
Stage |
Late Stage |
Monitor cost efficiency and profit margins |
| Product |
Goal |
Late Stage |
Define metrics based on product’s specific goals |
| Product |
Goal |
Late Stage |
Example: Engagement for Facebook (e.g., time spent, interactions) |
| Product |
Goal |
Late Stage |
Example: Productivity for Superhuman (e.g., time saved, task completion rate) |
| Product |
Business Model |
Subscription-based |
Emphasize retention rates and subscriber growth |
| Product |
Business Model |
Subscription-based |
Measure monthly/annual recurring revenue (MRR/ARR) |
| Product |
Business Model |
Subscription-based |
Track churn rates and customer lifetime value (CLV) |
| Product |
Business Model |
Freemium |
Track conversion rates from free to paid users |
| Product |
Business Model |
Freemium |
Monitor user upgrade rates |
| Product |
Business Model |
Freemium |
Analyze the effectiveness of premium features |
| Product |
Business Model |
Ad-supported |
Focus on user engagement and time spent |
| Product |
Business Model |
Ad-supported |
Measure ad impressions and click-through rates (CTR) |
| Product |
Business Model |
Ad-supported |
Track user sessions and interaction duration |
| Company |
Strategic Priorities |
R&D |
Align metrics with the company’s strategic goals |
| Company |
Strategic Priorities |
R&D |
Example: Impact of AI on tech companies |
| Company |
Strategic Priorities |
R&D |
Example: Strategic shifts towards sustainability or digital transformation |
| Company |
Industry Knowledge |
R&D |
Deep understanding of industry trends and dynamics |
| Company |
Industry Knowledge |
R&D |
Example: Understanding the travel industry for Airbnb |
| Company |
Industry Knowledge |
R&D |
Example: Staying updated with regulatory changes in fintech |
| Industry |
Relevant Metrics |
Analytics |
Identify and utilize industry-specific metrics |
| Industry |
Relevant Metrics |
Analytics |
Avoid blind spots |
| Industry |
Relevant Metrics |
Analytics |
Example: E-commerce metrics like conversion rates, average order value (AOV), and cart abandonment rates |
| Industry |
Benchmarks |
Strategy |
Use industry benchmarks to set goals |
| Industry |
Benchmarks |
Strategy |
Compare key metrics with industry leaders |
| Industry |
Benchmarks |
Strategy |
Example: Benchmarking customer satisfaction scores in the hospitality industry |
| End Users |
Value Creation |
Business |
Metrics should reflect user value |
| End Users |
Value Creation |
Business |
Use metrics such as Customer Satisfaction (CSAT) and Net Promoter Score (NPS) |
| End Users |
Value Creation |
Business |
Track user retention and repeat usage |
| End Users |
Value Creation |
Tailored Metrics |
Define metrics for different user personas |
| End Users |
Value Creation |
Tailored Metrics |
Example: For a fitness app, measure engagement for casual users vs. fitness enthusiasts |
| End Users |
Value Creation |
Tailored Metrics |
Example: For educational platforms, track progress and success rates for various learner profiles |
Applying the Framework
To apply this framework, start with understanding the product and end users to define key metrics. Then, incorporate company priorities and industry context to refine these metrics into a handful of SPIs.
Case Study: Netflix
Netflix, a leader in the streaming industry, provides a wealth of pre-published metrics that illustrate the application of Strategic Performance Indicators in product management. Here are some key metrics used by Netflix, as reported in their quarterly earnings and various industry analyses.
| Key Metrics |
Category |
Details |
| Product Funnel Metrics |
Acquisition |
New subscriber additions (quarterly reports) |
| Product Funnel Metrics |
Acquisition |
Cost per acquisition (CPA) |
| Product Funnel Metrics |
Activation |
Trial-to-paid conversion rates |
| Product Funnel Metrics |
Activation |
Engagement during the first month |
| Product Funnel Metrics |
Retention |
Monthly churn rate |
| Product Funnel Metrics |
Retention |
Customer lifetime value (CLV) |
| Product Funnel Metrics |
Revenue |
Average Revenue Per User (ARPU) |
| Product Funnel Metrics |
Revenue |
Total revenue (quarterly and annual reports) |
| Product Funnel Metrics |
Referral |
Percentage of new subscribers from referrals |
| Product Funnel Metrics |
Referral |
Referral program effectiveness |
| Demand Side Metrics |
User Experience |
Content hours watched per subscriber |
| Demand Side Metrics |
User Experience |
User satisfaction scores (NPS, CSAT) |
| Demand Side Metrics |
User Experience |
App performance metrics (load times, buffering rates) |
| Demand Side Metrics |
Content Engagement |
Viewer engagement with new releases |
| Demand Side Metrics |
Content Engagement |
Completion rates of shows and movies |
| Supply Side Metrics |
Content Library |
Number of new titles added monthly |
| Supply Side Metrics |
Content Library |
Diversity of content (genres, languages) |
| Supply Side Metrics |
Production Efficiency |
Cost of content production |
| Supply Side Metrics |
Production Efficiency |
Production timelines and delays |
| Supply Side Metrics |
Content Performance |
Ratings and reviews |
| Supply Side Metrics |
Content Performance |
Awards and critical acclaim |
Company and Industry Perspective:
- Company Focus: Is the goal expanding the subscriber base, increasing engagement, or improving profitability?
- Industry Benchmarks: Compare Netflix’s metrics with industry standards from competitors like Disney+, Amazon Prime Video, and HBO Max.
For example, Netflix focuses heavily on user engagement metrics, such as content hours watched and user satisfaction scores, to reduce churn and increase customer lifetime value. By comparing these metrics with industry benchmarks, Netflix continuously refines its strategy to maintain its leadership position.
Summing it all up
In a real job, mastering SPIs can present itself when evaluating OKRs or launching a new product. In interviews, it might appear as questions about north star metrics or defining success metrics for a product or feature.
The framework for mastering SPIs can be summarized by the following:
- The Product: Stage, goal, model.
- The Industry: Relevant metrics, benchmarks.
- Your Organization: Strategic priorities.
- The Users: Value created.
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