Let’s shine a spotlight on the show Shark Tank. It features a group of investors who decide whether various products are worth investing in. To secure capital, entrepreneurs present their products in front of the “sharks,” and face questions spanning all aspects of their business, including distribution, marketing, and plans for the future. If you’re unable to answer these questions and provide clear goals, the sharks will turn you down. This show serves as a lesson to all businesses — if you don’t have an end goal or know how to measure metrics for success, then how can you take steps to make a profit?
This is where performance metrics come in. Together, output and input metrics are critical to identifying goals, creating strategic plans, and determining priorities. When you have weekly meetings, you want to be able to have an agenda — what needs to be focused on? Performance metrics show you what needs to be done to turn a profit.
Let’s delve deeper into the differences between input and output metrics and how to choose the right input metrics.
Input vs. Output Metrics
As previously mentioned, to determine how well a company is executing its goals, you have to look at the performance metrics. In most cases, all stakeholders are factored into setting these metrics — everyone from the customer to board executives. Performance metrics are broken up into two types: input and output metrics.
Your output metric is your end goal — it’s what makes your business succeed. If you’re an e-commerce business, your output metric is probably revenue, while if you’re an engagement-based business like a social network, your output metric is most likely active users. Output metrics should be calculated with precision and are mostly unchanging.
Your input metrics are leading indicators of your eventual output metrics. Input metrics are subject to change. The purpose of an input metric is to guide your marketing activities towards impacting your output metric. If you see signs that you’ve selected an improper input metric because it’s having no impact on your end goal, you should change it, not figure out another way to improve this specific input metric.
Not only are input and output metrics different in definition, they’re also different in how they should be applied. While an output metric is the best indicator of success, trying to use them to measure the success of your day-to-day work is ineffective and demoralizing. On the other hand, while an input metric is a great way to track the success of marketing activities in real-time, teams can get in trouble if they laser-focus on improving input metrics that end up having no effect on your output metric.
Think of it this way: Your output metric is your destination and your input metrics are the maps that’ll get you to your destination.
How to Choose a Good Input Metric
Input metrics should be able to be calculated quickly. It’ll take months to calculate 90-day retention — a potential output metric. It’ll take less than two weeks to calculate 7-day retention. If you believe that 7-day retention is a leading indicator of eventual 90-day retention, you should use that as your input metric.
Input metrics should also be easy to measure and remember. You have to be able to directly attribute changes in your growth marketing strategy to an impact on the input metric. Otherwise, how will you know whether your experiments are on the right track? Likewise, you need to be able to easily remember what your goal is.
And lastly, input metrics need to incentivize good behavior. If you’re focused only on driving new customers, you may be motivated to offer steep discounts to drive up this input metric that doesn’t end up being a sustainable growth strategy.
Here’s an example of an excellent input metric: Facebook’s goal for every user to add “7 friends in 10 days.” Even though the number of friends didn’t directly equal revenue, this metric ended up being their best leading indicator of future growth. This metric worked so well because:
- It’s calculated quickly: You’d know if you were successful or not in ten days, and marketing campaigns directly influence it.
- It’s easy to measure and remember: Either someone added at least seven friends, or not. “7 friends in 10 days” is very easy to remember. Maybe the actual best leading indicator was “6.5 friends in 21 days,” but with this level of precision, the input metric would’ve lost a large amount of its meaning and effectiveness.
- It incentivized good behavior: Choosing an input metric such as number of likes or numbers of posts in a feed could’ve easily incentivized people to create spam. The focus on inviting friends resulted in a stronger community.
Don’t Rush (Too Much)
Growth marketing is extraordinarily data-driven and fast-paced. The discipline of growth marketing is all about running and measuring experiments quickly. This means that sometimes, the need for speed is at odds with the need for more complete data. While your company’s end goal is probably revenue, it’s worth taking the time to examine the long and winding road between initial customer touchpoint and realized revenue to have a holistic view of your business strategies.
Read more for e-commerce growth tips for the upcoming year.
Last updated on August 16th, 2022.