Stratelight #7: Product Metrics vs Business Metrics

Intro

After a two week pause (hey, everybody is allowed to have some vacation ;) ) I'm back with a post on an important distinction which is often not made clearly.

The distinction I'm talking about is already clear from the headline, it's product metrics vs business metrics, which is very closely related to leading metrics vs lagging metrics.

This time I took inspiration from two different posts I read in the last weeks which both focus on this topic. I'll try to answer the question: What is the difference and why should anyone care?

Let's get started with definitions.

Business Metrics

That's the one most readers will be familiar with. VCs, boards and management often uses business metrics to measure product performance.

Examples are

  • Revenue

  • Profit

  • Margin

  • Market share

  • Operating costs

  • Churn/retention

As you can see, business metrics are generally lagging metrics. A lagging metrics is usually necessary to measure but only shows change long after the action leading to said change has taken place. It is, therefore, not well suited for measuring experiments and problems only surface long after they occurred, making it impossible to course correct in a timely fashion.

Note: I'll use this term synonymous with business outcomes. While not always true, outcomes hopefully are connected to metrics.

Product Metrics

Product metrics are measuring human behavior. As such they are leading metrics, able to forecast change in business metrics.

Examples for behavior changes are:

  • They buy sooner than they currently do so we earn revenue faster (this year instead of next year).

  • They buy more (more products, more licenses, more months).

  • They’ll spend more for the same product (they will pay more upon renewal or we can charge for trial access).

This class of metrics is in the influence of the product teams, which is one of the reasons it's crucial to translate business outcomes into product outcomes. It empowers product teams.

To uncover what to measure, Josh Seiden recommends to start with the question "What are the customer behaviors that drive business results?" in his book Outcomes Over Output.

Note: I'll use this term synonymous with product outcomes. While not always true, outcomes hopefully are connected to metrics.

Goal Setting Using One or The Other

Hope Gurion summarizes the difference very well by saying "A business outcome is a metric that moves the business forward, while a product outcome is a metric that helps us understand if the product is moving the business forward."

Often product teams are assigned business metrics to achieve. But product teams have a hard time driving business metrics if there is no clear strategy. Business leaders who want to leave their options open lack clear strategy. Without this strategy it becomes very hard to prioritize wisely and distribute the finite resources every product team has to reach the goals.

When product teams are assigned product metrics to achieve, which have been proven to influence business metrics it becomes much clearer and easier to measure the impact of a product team on the business metrics.

Why Should You Care?

If you are in any position to define metrics and goals for teams, make sure to make the above distinction transparent and empower your team(s) by setting a strategy and product metrics which the team can actively influence. This will not only make your teams connected to business outcomes, but will also allow more ownership and less looking for issues in other parts of the business. "Sales didn't close enough deals", "Marketing didn't generate enough pipeline" is not an excuse anymore.


🕵️ For the full picture, read The big difference between business and product metrics published in Product and Systems by Corinna Stukan and Empower Product Teams with Product Outcomes, Not Business Outcomes by Hope Gurion


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- Markus