Product development KPIs, or key performance indicators, are specific product management metrics that track and monitor business goals and give vital insights into the product development process.
They are a powerful tool for product developers by providing quantitative data on product quality, progress, and performance.
But what are product development KPIs? And how do you decide which product management metrics to track to streamline the product development process?
What are Product Development KPIs?
Product development key performance indicators are product management metrics that track and monitor the product team. They are used to measure the progress of projects and behavioral changes and identify opportunities for improvement.
Companies, especially SaaS companies that track KPIs, can gain control over their product development process and better manage teams to maximize output.
Since KPIs are tied to corporate business goals, they accurately reflect the performance of the business and whether your team is on track.
Why Should You Track Product Development Metrics?
Many businesses may rely on external data or market trends to see how well they’re performing in an industry. However, primary data collected from the organization’s performance indicators help teams know what to focus on and validate if they’re on track and improving.
The insights gained from setting and tracking KPIs lead to many benefits, such as:
- Getting an accurate measure of business performance
- Improving employee engagement and morale
- Helping make decisions that align with business goals
- Optimizing the product development process
- Analyzing regular trends and patterns in performance
However, to gain the above benefits with KPIs, the metrics you track must be aligned with the company’s broader goals.
According to a survey conducted by Google, “95% of leading marketers agree that to matter truly, marketing analytics KPIs must be tied to broader business goals.”
For example, suppose your main goal is to drive more customers to the business and enhance the user experience, including onboarding new customers. In that case, you might not want to set goals focusing solely on revenue generation. However, it is important to consider key metrics that capture the financial performance of the business, such as total revenue, alongside other relevant factors like product performance, product strategy, product usage, time to market, and the satisfaction of stakeholders. Below, we discuss what metrics are worth measuring and monitoring because they give you an accurate picture of your business performance, including its financial health, user experience, and overall success.
9 Essential Product Development KPIs to Track Business Growth
It can be easy to overcomplicate which metrics you should track, as not every KPI you achieve accurately reflects the progress of your business.
That’s why it’s essential to select the best KPIs that align with your broader business goals and give you vital insights into the product development process.
KPIs can be broken down into two types: strategic and tactical. Knowing the difference between the two can help you select which metrics to target.
Strategic Product Development KPIs
Strategic KPIs measure the long-term organizational results of product development. These metrics indicate the organization’s overall output, rather than focusing on the product development team, and are calculated over a long period.
New Product Releases
This product development KPI looks at how many products a business could launch. The company will track the number of products they’re releasing over some time, e.g., a year.
Few releases benchmarked against industry standards could indicate slow or lengthy development. Businesses can use this value to judge if the level of production helps them reach their goals or to identify optimization opportunities.
Companies can also use this number to see how many new products they release compared to their competitors. Looking at their competitors will help them understand their position in the industry and what they can do to gain an edge.
Before tracking this metric, many releases may not always be desirable. If you operate in an industry like construction, building and launching a new house would naturally take more time than developing a new app, so make sure to consider external factors when tracking new product releases. This is particularly relevant in the context of digital products, where development cycles can be shorter and released more frequently compared to physical products. It’s essential to assess the nature of the product and its specific industry to determine an appropriate release cadence that aligns with quality standards, customer expectations, and market dynamics.
New Product Releases = Amount of new product releases within X time
New Product Sales
New product sales functionality and new features are product development KPIs that keep track of the gross amount of sales of a new product release. Before tracking this metric, product teams decide what they consider a “new” product.
Knowing the lifespan of your product can help you understand when a product is considered new. For most companies, a new product has been actively placed in the market for 2-3 years.
Using this KPI will show you how newer products compare with your older ones. It will also help you to filter out bottlenecks with new product launches.
For example, suppose the product quality is high but doesn’t grab customer attention. In that case, it might be that it wasn’t marketed properly, or your competitors could produce a better product with better product quality.
If it wasn’t the latter, you may need to revise your product development process, including pricing. You can encourage the product team to be innovative or invest more in R&D to increase new product sales.
New Product Sales = Gross amount of recent product sales within X amount of time
Customer Satisfaction Score (CSAT) or Net Promoter Score (NPS)
Customer Satisfaction Score (CSAT) or Net Promoter Score (NPS) helps businesses measure the overall customer experience. This is a valuable metric that indicates the number of customers satisfied with a product.
Companies can start tracking CSAT by conducting customer surveys, which can be used to gather feedback from both existing and new users. These surveys contain subjective questions that solicit the users’ honest opinions about how well a product could satisfy them. By targeting both current customers and new users, businesses can gain insights into the satisfaction levels of their entire customer base and identify areas for improvement to enhance the overall customer experience.
Customer feedback from surveys can include open-ended questions that are cross-checked with other data or number scales to rate the features of a product from 1-10 or 1-5.
CSAT = Number of positive responses from customers x total number of survey responses.
It’s equally important for businesses to consider detractors, customers who may have had a negative experience or are dissatisfied with the product. By actively addressing the concerns and feedback from detractors, businesses can identify areas for improvement and work towards enhancing the overall customer experience. This proactive approach can lead to higher customer satisfaction, increased loyalty, and positive word-of-mouth referrals, ultimately benefiting the business in the long run.
Additionally, another important metric that businesses consider is customer churn, which refers to the rate at which customers stop using a product or service. Customer churn is a valuable indicator for companies to understand customer attrition and identify opportunities to improve customer retention strategies. By analyzing customer churn alongside metrics like Average Revenue Per User (ARPU), Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), and the lifetime value of a customer (LTV), businesses can gain a comprehensive understanding of their customers base. Average Revenue Per User (ARPU) measures the average revenue generated by each user or customer, providing insights into monetizing the customer base. Monthly Recurring Revenue (MRR) quantifies the predictable and recurring revenue stream generated by subscription-based businesses every month. This understanding allows them to optimize acquisition efforts, implement retention initiatives, and maximize long-term profitability and customer retention. Monitoring customer churn and focusing on customer retention helps companies foster customer loyalty and satisfaction, ultimately leading to sustainable growth and success.
Return on Investment (ROI)
Return on investment is a widespread product development KPI used to measure how much money a product generated relative to the amount spent in developing it. There are different methods to calculate ROI, but the basic one is:
ROI = Net return on investment/cost of investment x 100
Research & Development as a Percentage of Sales
Investing in R&D is essential for any successful product. It’s the main element that caused Google to surpass Yahoo! as the most popularly used search engine.
Despite the value of R&D, businesses need to measure how these costs impact their products. This metric helps ensure that R&D spending translates to higher sales or profits.
R&D as a percentage of sales is a product development KPI that tells product teams if the money they spend on making a product better is worth it.
It would be best if you typically aimed for a higher percentage, as this means that your investment in R&D is effectively contributing to the business’s success.
High R&D expenditure can also signify that a company prioritizes innovation and may gain a competitive edge in the market.
Research & Development as a Percentage of Sales = Amount of R&D expense/gross amount of company sales
Tactical KPIs measure the short-term results of product development. They indicate the output of product teams, individuals, or processes and are used to evaluate employee behavioral and structural changes.
Team velocity refers to the rate at which a product team can burn down story points. Tracking this product development KPI gives a product manager many valuable insights.
Agile teams can use this metric to assess performance and better estimate the time taken for future sprints. It also gives product owners a good idea of the team’s capabilities and identifies improvement opportunities to help manage tasks.
A high team velocity indicates that teams, on average, can quickly get tasks done and complete a project. On the other hand, a low team velocity can show bottlenecks and flaws in the process, or it could mean that the employees are not sufficiently skilled to burn down story points quickly.
Team velocity = Average number of story points retired per sprint
On-time delivery measures the team’s performance against the deadlines for each release. This product development KPI is measured in days and helps teams better predict deliverables and meet customer expectations.
Tracking on-time delivery will help you understand how accurate teams are in estimating the time taken for a project.
Better predictability of the completion of a project leads to higher business and customer confidence and helps managers better understand why projects become delayed, driving continuous improvement.
Sprint burndown shows the progress of agile development and how many tasks are left before the completion of the project.
Scrum teams can plot sprint burndown on burndown charts that help visualize the story points that have been completed. You can download TCGen’s deliverable hit rate chart for a template. You can use this chart to track the rate of task completion.
Measuring sprint burndown helps teams keep track of the project and stay on schedule. It is best applied in complex projects with many tasks.
Effective Resource Allocation
Effective resource allocation tracks how efficiently your team uses resources to maximize output. This is a valuable metric to follow as it gives insights into the product development process by highlighting how resources are used to develop products.
When tracking this metric, it’s important to measure only your core products. Core products vary from business to business, so you must decide which products you consider essential to your final deliverables.
Story Points Retired
Story points retired look into how many story points a team can complete within a set time frame.
This KPI gives you an idea of how many tasks a team can complete and thus can be measured to find performance improvements.
Knowing how many tasks a team or team member has completed can help evaluate the organization’s performance. Tracking and sharing this info with employees can show them how they are progressing and what they can aim to improve.
You can measure this KPI in the following ways:
- # of story points retired in a given sprint
- # of story points retired per team member
Best Practices for Setting KPIs in Product Management Teams
Knowing about product development KPIs isn’t enough. Many project managers overcomplicate metrics and fall into measuring things for the sake of measuring them.
Instead, you should follow a few guidelines when setting product development KPIs for your team.
Some best practices:
- Keep it simple – Only track the metrics that align with your end goal. Don’t track metrics just for collecting data. Instead, consider why measuring a particular metric would help you to achieve your broader business goals better. More data doesn’t always equal better performance, so pick a few metrics and stick to tracking them over time.
- Use dashboards – Project management software will give you access to your dashboard. This dashboard can arrange all your information, insights, and data in one place. Use dashboards to efficiently manage the data you collect from tracking KPIs.
- Prioritize KPIs – Some KPIs may bring you more value and have a direct relationship with the success of your business. These KPIs should be your top priority. Make sure to track and improve these first and foremost, as these will bring your business the most positive impact.
- Choose practical metrics – Rather than investing time and money to collect subjective, intangible data, it’s more beneficial to collect quantifiable data. Quantifiable data can be measured and compared easily. This makes it helpful in evaluating your business performance and accurately seeing how well your business is performing.
By following the above rules of thumb, product management teams can prioritize the KPIs that contribute to the success of your business.
Product development is a risky process, and it can be challenging to keep track of project schedules, team performance, and the business’s long-term goals, especially when considering the needs and expectations of new customers. Having a well-defined product roadmap can significantly alleviate these challenges by providing a clear and strategic plan for the development and launch of new products, ensuring that the company stays focused on meeting the demands of both existing and new customers. By aligning the product roadmap with the business objectives, companies can ensure that the development efforts align with their overall strategic direction, maximizing the chances of success and achieving the desired outcomes.
For this reason, project managers rely on KPIs to measure and track employee performance and align it with business objectives. There are many KPIs to follow, but using the critical few gives valuable insights into business performance.