What if you only had to focus on one thing to grow your business? Something dead simple like Facebook’s seven friends in 10 days?
If you could identify that one thing, growth would be simple.
All you would need to do is optimize for that one behavior, over and over again, all the way to exponential growth. We call that one thing your “key growth metric.” When you find it, it’s like you have growth marketing superpowers.
In this guide you’ll get a step-by-step process for finding your key growth metric — your one metric that if improved, over and over again, can fuel exponential growth.
Once you find it, you’ll be able to focus your efforts and fire on all cylinders, well on your way to exciting gains.
What Is a Key Growth Metric?
A key growth metric is the rate at which users take an action that has a causal relationship to growth.
For example, Facebook identified that users who added seven friends in 10 days were more likely to become daily active users than those who did not. This was Facebook’s key growth metric because:
- There was a causal relationship between adding friends and becoming a daily active user
- More daily active users meant growth for Facebook.
Uber’s VP of Growth, Andrew Chen, framed up the utility of key growth metrics. He says:
My Quora Answer — Andrew Chen
If your business is a house, typical KPIs like customer lifetime value, churn rate, and customer acquisition cost are the light bulbs. When the light bulbs are bright, the business is in good shape. But when they start to dim or flicker, it’s only symptomatic of an underlying problem. It won’t tell you what the specific problem is.
Your key growth metric is the electricity that flows into the light bulbs. When the lights flicker you can be certain it’s because your key growth metric is weak, on the decline, or under performing.
Therefore, when you identify your key growth metric, your ability to diagnose and treat performance issues multiplies by 10x.
The Three Pillars of Key Growth Metrics
It’s easy to get lost in all the data. A key growth metric meets the three following criteria:
- It’s attached to behavior. In other words, it measures a user’s specific behavior. It is not an abstract data point like customer lifetime value or churn rate.
- It’s measurable. You know with certainty if someone did or did not take an action because it’s measureable. For example, you know someone watched a video because of your wistia analytics. You can measure it. You can’t know if someone did or did not read your direct mail piece. It’s not measureable.
- It has a causal relationship to growth. A regression analysis and a series of experiments have validated that your key growth metric has a causal relationship to growth. We’ll talk about how to validate a causal relationship in a minute.
How Key Growth Metrics Give You Super Power
When you know what your key growth metric is, you can take dead aim at optimizing for that specific behavior. It turns your focus into laser focus. You will know with 100% confidence that improvements in your key growth metric means imminent success.
How to Identify Your Key Growth Metric
The following step-by-step process will take you by the hand and show you how to identify your key growth metric.
1. Indicate Your Northstar Metric
Facebook’s Northstar metric was Daily Active Users (DAU). Facebook chose this metric because they maintain an advertising revenue model. That means they need eyeballs to monetize, and more daily active users means more eyeballs to monetize.
For SAAS companies the Northstar metric can be something basic like the number of paying customers.
For eCommerce companies the Northstar metric could be initial purchase value.
2. Hypothesize Potential Key Growth Metrics
With your Northstar metric clearly defined, list all the possible behaviors that could single-handedly cause it to improve. It might be a single behavior, or in most cases it might be a series of behaviors.
For example a SAAS product like Basecamp might hypothesize that the series of behaviors that cause a premium upgrade are:
> Create a new Basecamp
> Then add team members
> Then post at least once every three days in the first 30 days.
Think about the actions users need to take to get maximum value out of your product. Answer the question, “What’s the single biggest “ah ha” moment that delivers the most amount of value?” Then list the actions a user needs to take to get to that “ah ha” moment.
3. Run a Regression Analysis
With your hypotheses in hand, run a regression analysis. This can get fairly complex, or you can keep it simple. The best run down of how to run a regression analysis came from David Cook on Quora. For the sake of the analysis you may need to combine multiple behaviors into one metric that signifies successful completion of all the behaviors.
For example, in the case of Basecamp, the Head of Growth running the regression analysis would create a success metric called “Upgrade Experience.” In a spreadsheet, she would give users who completed the “Upgrade Experience” a value of 1, and she would give the users who did not a value of 0.
With that setup, run a regression analysis to see if there is a correlation between the upgrade experience and premium upgrades.
It may take some swipes in the dark to identify potential key growth metrics, especially if you’re trying to combine multiple behaviors into one metric. Once you find the key growth metrics with the strongest correlation, run a series of experiments to validate causation.
What if you don’t have enough data?
Most startups face the inevitable disappointment of not having enough data. That doesn’t mean you should ditch the effort to identify and optimize your key growth metric. Instead of finding a statistically valid key growth metric, find directional insights from the data you do have. Optimize for the key growth metrics that show the most promise until you have enough data for significant insights.
4. Validate Your Key Growth Metric
This is the first step in the optimization process. Setup tests that increase the completion rate of your key growth metric.
The point here is to see what happens when the key growth metric improves. In other words, you’re trying to answer the question, “Does the key growth metric actually grow the business?”
For example, Basecamp may find a connection between users who complete the “Upgrade Experience” and upgrade to premium. But that may not mean the Upgrade Experience causes growth. We need to validate it with a series of tests.
The series of tests will avoid the risk of selecting a key growth metric that doesn’t actually grow the business, which can be catastrophic.
Once you validate that the key growth metric improves your Northstar metric, the party is on…
5. Optimize Your Key Growth Metric (and pop bottles)
Equipped with growth marketing superpowers, focus your optimization efforts on improving your key growth metric. Line up a series of tests, prioritize those tests… then go!
If you don’t have a reliable system for running growth marketing and optimization experiments, grab free access to The Growth Engine Workbook. It’ll help with organizing and prioritizing ideas, and more.