How do you know your design efforts are actually resulting in more revenue for the business
You don't, you just take your boss's word for it. (And guess what? She's just taking her boss's word for it too.)
A startling finding in our growth research is that revenue is a C-level consideration, and NOT a practitioner, team-level metric.A typical scenario: ICs and teams focus on behavior-based metrics (like Day 20 Retention or Engagement) and hope that their efforts result in revenue.Across the divide, CEOs, CROs, and CTOs see increases in revenue but can't identify what's directly responsible for it. (The only exception being direct sales).
Shouldn't everybody should be thinking about revenue and not just hoping that revenue will happen if they can get their team-level numbers up?
Separating the metrics out in this way means teams that are focused on mashing users into the product via engagement hacks, trying to improve Day 20 retention. And executives that can't define a causal relationship between Day 20 retention and revenue other than the fact that obviously the people who stick around longer are more likely to become customers.There's a deeper problem here as well: as causal relationships go, "people who stick around longer are more likely to become customers" is particularly weak.Here's a thought experiment to illustrate:Imagine two scenarios in which Ben causes Annie's death. In scenario A, he poisons her gin, she drinks it and she dies. In scenario B, he poisons her gin, she notices, she heads to the store to pick up another bottle and is hit by a car on her way home. In Scenario A, Ben kills Annie. In scenario B, he sets off a chain of events that results in her death, but does he kill her? A lawyer would be more inclined to convict in scenario A than scenario B.The point is that we should think more like lawyers when it comes to revenue. What makes it happen? Retention might set off a chain of events that results in revenue, but what actually causes it?If teams were focused on the direct causes of revenue (rather second or third order causes of revenue) they would be able to make meaningful changes to it faster.As we've heard executives describe it to us, there are two reasons they can't hold teams to a revenue metric:
- Revenue is a lagging indicator. Even if a teams' effort has an impact on revenue, that impact is not evident until weeks or months later
- It's impossible to draw direct causal lines. Revenue metrics like MRR are aggregates — it's impossible to determine which customers were responsible for an increase in MRR, and so it's impossible to tie effort back to the metric.
Value Paths solves both these problems.