Using Key Performance Indicators to Guide Investment Decisions

In this guide, we are going to talk about key indicators that will help you make decisions on how to invest in your business going forward. This will help you understand the kinds of products you will move forward with and invest in.

Key indicators are often referred to as KPIs, or key performance indicators. These are critical and measurable indicators that help you measure a desired result.

What are the indicators of a good KPI?

• Provides objective results and feedback

• Measures what needs to be measured and has numbers and definition to go along with it

• Easily tracked over time to offer direction for future decisions and strategy

What are some common and important examples of KPIs?

• Sales lifecycle time

• Revenue growth

• Customer retention

• Time to market

• Qualified leads

• Net profit

I could probably create a list a mile long of KPIs, but what is important to note is that these are measurable over time. They come with numbers, which help you understand what is working and what is not, therefore helping you guide your investment decisions.

Product managers work on bringing new products to market and indirectly make decisions about where investment goes. There are three important pieces of the role that require product managers to look at the most important KPIs to define them:

• Strategy

• Road map

• Key features

Let’s break down each of these to understand exactly what they mean.

What is strategy? The strategy is something a product manager needs to be able to explain for their product; however, it varies greatly depending on the size and structure of the company. When we talk about strategy, it really depends on the size of the company. It could be the strategy for the entire portfolio of products at the company, a product line or a business unit, or a single product. For each of these variations, it is important to:

• Set the strategy

• Execute on the strategy

• Make sure product launches and the product lifecycle are aligned to the strategy

What is a product road map? A product roadmap is a shared source of truth that outlines the vision, direction, priorities, and progress of a product over time. It's a plan of action that aligns the organization around short- and long-term goals for the product or project and how they will be achieved.

• The road map can be planned on a quarterly basis, monthly basis, yearly basis … or really whatever works for the product. No matter how often the road map has launches and is updated, it needs to be defined.

• The roadmap also varies depending on the industry and whether the product is technical vs. non-technical and software vs. hardware.

Finally, key features tie into the road map because, quite simply, key features are part of the road map. The road map will help you lay out the key features you are going to deploy. Some questions that need to be answered are:

• What are the key features of the product?

• Why are these key features?

• What is the evidence that these should be the key features deployed ?

• How is are these features going to be released as part of the product road map?

We have seen what is done to bring products to market and defined some KPIs. Combining these two is how to make investment decisions. You need to look at KPIs as you work through product launches, features, road maps, and strategy.

Let’s look at an example of using a KPI to guide an investment decision. Say you make shirts. You look at your KPIs and learn that 75% of the shirts you are making are short-sleeve shirts, but 75% of your profit is in long-sleeve shirts. This tells you that you are not investing in the right area of your business. You are making short sleeves, but people want to buy long sleeves. This is a simple example, but it helps show how KPIs (because they have numbers associated with them) make investment decisions and choices much easier.

Additionally, once you decide on the part of the business you are going to invest in, you need to ensure you have:

• A plan to manage the product from inception through launch through full lifecycle, including a detailed road map

• An operating plan, such as the achievement of growth objectives including market share, revenue, profit, and return on investment for all the channels and categories of business and key customers

• A plan for managing and implementing marketing activities through research, strategic planning, and implementation

KPIs are extremely important to understand because they help determine where future investments should be made. They are great because they are concrete numbers and evidence that have very little to do with opinion and can truly help you create a great business case to ensure there is success in making an investment.