How To Establish The Right Metrics For Digital Product Success
- Posted by GM, Digital Solutions
- On July 22, 2021
- Digital Products, Digital Solutions, Financial Solutions, KPI, Metrics, Solutions, Success
Enterprises all over the world are taking advantage of digital technology to upgrade services, improve operational efficiency, and accelerate innovation. However, many don’t know how their digital initiatives will actually impact bottom-line performance. Executives recognize that digital transformation should lead to positive outcomes, but in order to validate that, they need to track metrics to prove it. But how do you measure digital product metrics?
What makes this especially challenging is that digital transformation affects all parts of the business. It’s not enough for individual departments to come up with their own scorecards and methods for tracking progress. Leaders have to zoom out to clearly see whether digital transformation is generating tangible results across the entire organization.
So what metrics should you be tracking?
Unfortunately, there is no one-size-fits-all answer. But there is a process you can follow to identify the right metrics for your business. That process requires establishing good digital product development practices first. Only then can you choose qualitative and quantitative metrics that effectively define success for your organization.
In this post, we’ll discuss what these digital product development practices are and provide you with examples of metrics for determining digital product success.
Implement Good Digital Product Development Practices First
Before you decide on how you’ll measure digital success, you have to create a cohesive roadmap for your digital initiatives. You can’t just start investing in new technology or products and expect them to create value.
The tendency for many leaders is to approve every digital project that comes across their desks, assuming each will deliver value in time. The reality is that while isolated initiatives may improve certain aspects of the business, if they don’t fit into the broader organizational strategy, they may have a negative impact in the long run. Remember: digital transformation requires time, money, and effort. There’s an opportunity cost tied to everything you do.
Therefore, before you determine which digital product metrics to use for your business, you have to make sure everyone is aligned on how to digitize the business. You need to give your digital product development team the freedom to execute comprehensive discovery phases as part of the early stages of the project. This not only brings alignment to the stakeholders, it reveals valuable insights about your customers that guide the project trajectory.
From there, you can hypothesize on what features, products, or services people want and start thinking about how each could contribute positively to your business. Once you’ve solidified your digital strategy and roadmap, you’re ready to settle on success metrics.
Of course, every business is different, but most will use some version of the metrics highlighted in the next section. These metrics fall into four categories:
- Financial performance
- Product attractiveness
- Talent development
- Business success
Each category is crucial for measuring digital product development success, although your specific analyses may differ from what your competitors do.
Measuring Financial Performance
Companies measure financial performance for digital products and services in a multitude of ways. One of the most common calculations (for any investment, really) is Return on Investment (ROI). As with any large-scale capital outlay, ROI is a measure of how much value your digital products create in relation to how much you invested to create them.
Additionally, you will track sales and revenue numbers for every new digital product you bring to market. It makes sense for product marketing and business development teams to do research up front to understand reasonable benchmarks related to digital product sales. Depending on your unique business model, you might want to monitor daily, monthly, and annual numbers.
As digital products gain momentum, it is also common to keep close tabs on gross margins to ensure costs are covered and profitability achieved. And if your financial data collecting is more sophisticated, begin to calculate customer lifetime value (CLTV). There are 2 approaches to calculate CLTV, one looks historically at data while the other predicts how long a customer relationship is likely to last. (Learn more about calculating CLTV here.) This metric ties nicely back to sales and marketing, by guiding your team’s efforts to refine approaches to prospective customers and customer retention while preserving profitability.
None of these calculations are revolutionary or unique to digital products. But they are essential for validating your innovative endeavors.
Tracking Product Attractiveness
Beyond monitoring key financial metrics, you also need to understand how customers engage with your products. Whether you serve individual consumers or businesses, you should know how well you convert new customers and how well you retain existing ones.
Because digital products can stay relevant for years, it’s especially important to keep existing customers coming back. On that note, your digital product teams should follow customer churn closely.
Product usage is another area in which you can measure success in several ways. For example, you can track how often users log in to your SaaS platforms, how long they spend in your applications, how many active users you have at any given moment, and what is your peak engagement level.
Regularly sending surveys out to measure your net promoter score, which is essentially an indication of how likely customers are to recommend you to others, provides a good measure of customer satisfaction. Should you discover that your product is not resonating with buyers, it’s time to reconvene the development team, study customer feedback, and iterate (although this really should be happening anyway).
Talent Development and Building the Right Resources
One area that many executives overlook is a company’s ability to attract, develop, and retain top technical talent, particularly people with digital product development and software engineering expertise. As you likely know, there’s a growing skills shortage in the marketplace. And it’s only getting harder for organizations to find the people they need to execute their digital roadmaps.
With this in mind, companies often put extensive programs in place to build employee technical and leadership skills to cultivate career paths, as well as internal processes to track employee tenure, career path and cultural alignment.
When the challenge of hiring direct creates risk of delays to their digital project, executives often turn to nearshore development partners for experience design, software engineering and digital product development in order to accelerate time-to-market. Having a strategy for engaging outside expertise in scalable agile development in parallel with building internal talent will increase your organization’s success at implementing scalable digital transformation or digital product development initiatives.
The last category you need to consider when choosing your digital product success metrics is how the overarching business performs as a result of digital transformation. For example, you should know how much market share you have today and how much you’re winning or losing as a result of your digital products.
Time to market is another useful metric for digital applications, especially given the rate of disruption in the world today. Your goal should be to deliver fantastic digital products to market as quickly as you can by leveraging agile development best practices and continuous feedback that drives continuous improvement.
Senior management should also watch your company’s digital product spend as a proportion of total IT spend. As you innovate, you will have to spend money to upgrade architecture, hire new people, purchase new assets, and so on. These investments should all be factored into your overall digital expenditure so that you can calculate ROI accurately.
The metrics highlighted above are only a handful of what you could use to measure digital product success for your business. Use this article as a starting point to think about what would work best for your organization and don’t be afraid to adjust certain metrics if you discover they don’t work well.
If you are struggling to hire talent, consider augmenting your internal; team with outside resources that bring experience and expertise in user experience design, software development and digital product development.