Success & Velocity
You need two kinds of metrics in your business: success and velocity. Success metrics tell you whether you hit your goals, while velocity metrics tell you how likely you are to hit future goals.
Your primary job as a leader is to set goals and achieve them. To do so, you need to choose the right metrics to measure your progress, which is a lot harder than it sounds! There are hundreds of metrics you could choose for any given goal and there is a danger in choosing too many or too few.
For any given goal I recommend choosing two metrics: one for success and one for velocity.
Success metrics tell you whether you have achieved your goal. At any given time you should be able to measure your progress towards your goals using success metrics.
Velocity is how fast you’re moving. Your velocity should always be increasing, and if it’s slowing down then you likely have some significant problems.
There is a big difference between hitting a goal with low velocity and high velocity. In both cases the goal is technically achieved, but with low velocity it’s unlikely you’ll be able to hit any future goals. If you have high velocity, you can likely achieve your next set of goals easily!
Success metrics are many of the common metrics you likely use in your business today, including Revenue, MAU/DAU, Net Retention, and Churn Rate. You likely have goals right now that are measured by success metrics.
Velocity metrics measure the drivers of success. You always want to be more productive than you were last month, and velocity metrics are a measure of that productivity. Given the same level of investment, will you get more out of it in the future? Velocity metrics will tell you exactly that.
Unfortunately, many companies use the rate of growth of their success metric as their velocity metric. For example, they might use Revenue as your success metric and then try to use the rate of growth of revenue as a measure of velocity. Success is the effect, not the cause. Good velocity metrics look at the causes that drive success, such as what factors affect how quickly revenue grows. If you just measure the rate of growth of revenue, you have no insight into whether that growth will continue!
Here are some examples of various businesses and functions and how they might choose their success and velocity metrics:
Sales for an Enterprise SaaS Service
Success Metric: New Revenue (ARR)
Velocity Metric Options:
Sales cycle length. If your sales cycle is getting shorter, you can close more deals in less time in the future.
Average contract value (ACV). If your ACV is going up, then you can make more money from the same number of deals in the future.
Sales pipeline size. If the size of your sales pipeline is continually decreasing, then you might hit a sales goal today but not in the future.
Marketing for a Consumer App
Success Metric: New Users
Velocity Metric Options:
Conversion Rates. The higher your conversion rates, the more users you can add in the future with the same volume.
Customer Acquisition Cost (CAC). If your CAC is going up, it’s going to get more expensive to acquire new users in the future and hence slow down your growth.
These are a variety of choices for Velocity metrics, but you should choose only one for each function or goal. It can be hard to choose, and the right answer depends on your specific business and what you believe drives success. The good news is that if you make a bad choice it’s easy to change! Many teams will change their velocity metrics every year as they better understand what drives success.
The combination of success and velocity metrics leads to reliable and consistent goal attainment because you can focus on both your current and future goals at the same time. As a leader whose job it is to set goals and achieve them, that’s exactly what you need.
velocity can build up to a point, cannot grow for ever ;)