Defining Robust Key Metrics in the Lean Canvas

You can’t manage what you can’t measure.
-Peter Drucker

Can you imagine getting to a new place without GPS, a map, or a compass? Or piloting an airplane without gauges? Think of trying to bake a cake without knowing the quantities of ingredients, the oven’s temperature, or the baking time. Building a new product is no easier task than the examples above, and trying to do it blindfolded will most certainly have a significant adverse effect on your success rate. That’s why Key Metrics from the Lean Canvas are such a critical part of getting to product-market fit.

What is the Lean Canvas?

The Lean Canvas is a way to express your business idea and capture its core characteristics. It helps to break down an idea from a high-level concept into a particular set of actionable assumptions and hypotheses.

What are the Key Metrics in Lean Canvas?

Key metrics are one of the building blocks of Lean Canvas. Its purpose is to define success for your product or service. With metrics, you should be able to answer the following questions:

• How do we know if we have achieved success?
• Are you progressing toward the desired outcome at the expected pace?
• If a course correction is needed, what areas must you focus on?

The key metrics intend to give you feedback on your performance according to initial expectations. Read the What is Lean Canvas on the blog to learn more about it.

In this blog post, we will go through the process of defining Key Metrics that will support your team in making data-driven decisions and driving business outcomes.

How to Pick Metrics that Matter?

...what you measure is all you’ll get.
-H. Thomas Johnson

One common pitfall regarding metrics is picking a so-called “vanity” metric unrelated to delivering value to the customers or the company.

Let’s consider the following example: We are about to launch a new music streaming platform like Spotify. How will we measure its success? One possible metric could be the “number of registered users”. The problem with that metric is that driving registrations does not directly bring customer value. This could easily lead to driving many registrations that are never activated and can quickly burn through the marketing budget we have without getting any traction.

The next candidate might be the “Number of active subscribers”. This will optimize for increasing customers, which is excellent for a company in theory. In practice, purely focusing on subscriptions will drive people to swipe their credit cards but won’t necessarily extract value from the product. Those users will quickly churn after a couple of months.

An even better metric we can pick is the “number of minutes of music streamed”. This metric captures multiple aspects of the customer journey: acquisition, activation, and retention. The total number of minutes can be influenced by the usage of a single user and the number of active users on the platform, allowing us to employ multiple tactics to move the needle in the right direction. The Icanpreneur platform navigates entrepreneurs through the process of identifying their key metrics:

Tracking key metrics

Defining a good metric is just the first step. Having a reliable way to measure and track progress is equally important. That can be the difference between having key metrics on paper and extracting value from them.

In an ideal scenario, especially with small product teams, key metrics should be accessible to every team member at any time with fresh data. This suggests proper tracking and reporting should be part of the product strategy and roadmap, not an afterthought. Nowadays, there are great tracking solutions that require minimal engineering effort and no-code solutions for building reports and dashboards.

Key Metrics in the Lean Canvas

Let’s see how Key Metrics relate to some of the other building blocks of the Lean Canvas template.

Key Metrics and Customer Segments

A key set of metrics relates to how well we can engage the target audience. Depending on the specific use case, different stages of the user journey might be worth focusing on. A metrics framework covering the customer journey is called Pirate Framework (or AARRR). It’s short for Acquisition, Activation, Retention, Referral, Revenue.

It’s common to track the number of active users over a given period, such as daily active users, monthly active users, etc. The important definition here is what is considered active based on your use case.

Let’s take Spotify as an example. There are multiple options for active users:

• Users who have an active subscription
• Users who open the mobile or web application
• Users who listen to at least 15 minutes of content

It makes sense to pick the metric most related to delivering value to customers. This makes “users who listen to at least 15 minutes of content” a good candidate.

Key Metrics and Revenue Streams

Revenue is important for every business and its sustainability. Focusing solely on revenue streams can optimize for short-term goals, but combined with key metrics, it can also predict product-market fit.

Instead, ensure that key metrics impact revenue but focus on customer value. In the example above, to increase the number of users who listen to 15 minutes of content, we can drive more users to the platform, which could lead to higher revenue. We can also increase retention, meaning that more users who were once active will remain active.

If our business plan aligns well with customer value and revenue with the company, the revenue is a good metric to discuss during annual reviews or board meetings but doesn’t need to be on the team dashboard.

Key Metrics and Cost Structure

Costs can play a very different role in our company's business model. Take a look at the top 10 popular Lean Canvas examples. Some products only have the costs of “Payroll” and “Infrastructure.” Such costs are relatively flat, no matter how many products we sell.

For others, the delivery of each product unit incurs costs. Consider the case of Kindle, which has hardware that needs to be produced for every sale. Or an AI model in which serving a single customer has a non-trivial cost per user.

If your product falls into the latter category, it’s essential to acknowledge that in the key metrics. This will stimulate the team to optimize expenses and reduce costs per unit. Back to Spotify's example, one possible cost reduction metric could be related to royalties paid to music labels. For example, “% of own content served from total content served”.

Cost-related metrics are great examples of counter metrics that can help you establish appropriate checks and balances so that a certain main metric (like customer satisfaction) won’t come at the expense of something else important (like cost of goods).

To wrap it up

• Key metrics are essential for ensuring that you are on track with your original plan or course correction actions are needed.
• To make the most of your metrics, define metrics that measure customer value delivered rather than vanity metrics or purely financial metrics.
• Ensure that the defined metrics provide a holistic overview of your business.

A clear set of metrics helps a team understand how success is defined and measured. This empowers the team to prioritize according to those metrics. For small teams like startups, it’s easy to lose focus when juggling multiple competing priorities. For large teams and enterprise organizations, it’s even easier to lose track of what’s essential when each team member heads down on his specific tasks.