“If you can’t quantify him, then you don’t really know him.”

If a product director wants to control a product, he or she must first control the data, the conversion, retention, payment, etc., and then he or she will know what to do and what to do. We share how to use data to drive products, formulate the company’s annual goals and KPI of each department by taking popular products in fashion shows as examples.

We first simulate a product — Lightning live broadcast, similar to YY, Douyu, etc., which are all familiar names. Assuming that the revenue of Lightning Live broadcasting is 150 million yuan in 2015, the company’s goal in 2016 is to increase the revenue by 3 times to reach 450 million yuan in annual revenue and reach 20 million yuan in net profit. As product director, how do you set the company’s KPI for 2016?

Step 1: Look for business rules and forecast revenue and profit targets

For show-style products, the business model is very mature: virtual gift revenue sharing. This business model has been successfully verified in YY and 6 Rooms, so we can refer to their model directly. Profit = revenue – Anchor and guild share – operating and marketing costs – staff costs – bandwidth and server costs

  • Anchor and guild share is usually 65%, this is a fixed cost, there is no room for compression.
  • According to previous data, the operating cost is about 5% of the revenue, while the marketing cost is about 15%-20%.
  • The personnel and office costs are decided by HC, tentatively 2 million yuan per month.
  • Bandwidth and server cost are determined by the number of users, tentatively 1 million per month on average.

As we can see above, profit is actually controlled by operating and marketing costs. According to the regulation of market and operating cost, we can make profit forecast:

Plan 1: Pessimistic profit forecast, operation and marketing cost: 5%+20%=25%

Profit: 45,000-45,000 * 65%-45,000 (5%+20%) -200* 12-100 *12 =9 million

Plan 2: Optimistic profit forecast, operating and marketing cost: 5%+15%=20%

Profit: 45,000-45,000 * 65%-45,000 (5%+15%) -200* 12-100 *12 = 31.5 million

According to the formula, as long as the revenue reaches 450 million yuan and the marketing and operating costs are controlled at 22.5%, the company’s annual profit target can be successfully achieved.

Step 2: look for product growth rules and decompose revenue targets

Similar to games, revenue is determined by the number of paying users and ARUP value, monthly revenue = number of paying users *ARUP value. The ARUP value is relatively stable. Assuming that the ARUP value remains unchanged, the number of paying users directly determines the growth of revenue. At this point, we come to a very important conclusion: the revenue metric is the result number, and the paying user number is the execution number. Achieve monthly revenue goals by achieving monthly paying users and maintaining ARUP.

So how do you get paid user numbers? We’ve tried a number of ways to estimate paying users, and the last one we chose was the monthly retention estimate:

  1. Based on last month’s paying users and monthly retention rate of paying users, it is inferred that the retained paying users in this month are old paying users. Monthly paying users = (n-1) monthly paying users x monthly retention ratio of regular users. Note: The monthly retention ratio of existing users is the retention of all existing users, not the following month.
  2. Estimate the number of registered users according to the input budget of market channels, and then predict the number of first charge users according to the number of registered users. New paying users in N months = (market budget/cost per user) * first charge rate
  3. Paying users of the month = old paying users + New paying users
  4. Monthly revenue = monthly paying users * ARUP, which is generally relatively stable from month to month
  5. This month’s profit = this month’s revenue – Anchor and guild share – operations and marketing costs – staff costs – bandwidth and server costs
  6. Using this formula, you can do monthly recursion, extrapolating from last month’s paying users to the next month’s data, and finally come up with revenue and profit targets for the entire 12 months

Our 2016 target quickly breaks down to 12 months based on monthly retention projections for paying users. At this time, we will also come up with a half-year plan:

First Half year (January-June)

Monthly paying users increased 2.4 times, and regular paying users increased 2 times

Monthly payment ARUP, not less than 800

Revenue target for June is 38.47 million, profit 1.34 million

Second half year (July-December)

Monthly paying users increased by 1.2 times, and regular paying users increased by 2 times

Monthly payment arup around 800-1000

December revenue target is 57.57 million, profit 6.67 million

The third step, team cooperation, department KPI target dismantling

In order to achieve quality goals, we need to put the blame on every department and person in charge. When we decompose department KPI, we need to follow three principles:

  1. Principle of complete distribution. As long as the KPI of each department is achieved, the company’s revenue and profit targets will be achieved.
  2. Principle of matching responsibility and power. The KPI goals of the department need to match the authority and resources of the department
  3. Executable principles. The decomposition of KPI should finally reflect the work results of each department

According to these three principles, we can divide KPI of each department.

Marketing Department

The Marketing Department is responsible for attracting customers (new users), according to the company’s investment cost, market operation, marketing, channel traffic mining, within the budget, to attract more high-quality users. Therefore, the KPI of the market is: the number of registered users, and there will be some reference indicators to ensure the quality of users. Reference indicators:

  1. Registered conversion rate and paid conversion rate. For example: 50% registration conversion and 2% paid conversion
  2. Retained. Time retention /3 retention /7 retention /14 retention/month retention. For example: 15% secondary retention, 6% 3-day retention and 3% 14-day retention

Product Planning Department

The product department is responsible for receiving and converting guests. The product team guides new users through the functions of the product so that users can quickly find their favorite content and become fans, and carry out registration conversion, interaction conversion and payment conversion. At the same time, through features, gameplay and activities, users can retain, recycle, continue to pay, and so on. Therefore, we set the KPI of the product team as the number of paying users, and separate the new paying users from the old paying users, and the old paying users are completely backed by the product. At the same time, there will be some process indicators to ensure product improvement and improvement:

  1. Number of login users. In addition to being responsible for paying customers, the product also needs to be responsible for logged-in users, especially existing logged-in users
  2. Transformation indicators. The core three indicators are: registration conversion rate, interactive conversion rate, and paid conversion rate
  3. Retention metrics. We’ll focus on login and retention of paying users

Content operations department

The operation department is responsible for the operation of anchors, the expansion of online and offline unions and anchors, the review and assessment of anchors, the operation and promotion of anchors, and the cultivation and optimization of anchors to provide users with better services. In the composition of our income, the gift income of anchors accounts for about 80%. That is to say, users of show products mainly consume content. Users become fans and pay for their favorite anchors. Therefore, the KPI of the operations team is: revenue. As we mentioned above, revenue is determined by ARUP and paying users, and paying users are determined by the product, so if the operations team wants to meet revenue targets, it needs to meet ARUP targets. However, ARUP is an unenforceable target, and we need to continue to decompose some secondary indicators to ensure the completion of ARUP:

  1. The number of valid daily broadcast anchors. For example, if the number of effective broadcast anchors per day in January was 800, then the doubling of revenue in June means the number of effective broadcast anchors is more than 1600
  2. The number of effective daily broadcast anchors. Quantity is not enough, quality is also needed. If the number of effective daily anchors is 150 in January, it must be increased to 300 in June. According to the current data, we can define the standard of a big anchor, for example: weekly income >=5000, weekly comprehensive score >=60
  3. The number of paying users per day. Based on the consumption data, we found that the principle of 2:8 is that 80% of the income of paid users of show products is completed by 20% of big R. So, revenue targets are directly met by these big RS. Then the service and operation of large R users will be a very important work. If the number of paying users per day is currently 300, it must be increased to 600 by June.

Matters needing attention

Through these three steps, based on the business rules of our products and the principle of user growth, we formulated the 2016 KPI of the company, and divided it into the marketing, product and operation departments, which became executable goals and could directly reflect the work achievements of the department. Finally, summarize the matters needing attention:

  1. The indicators of the three departments are interlinked. If the indicators of any department are not completed, the annual target will fail
  2. Market operating costs are estimated based on revenues and profits. Once the income and profit are not achieved, it is likely to lead to market investment overspend, resulting in losses of the company, which will seriously affect the cash flow
  3. It is better to choose one core KPI for each department. However, this indicator is usually a result indicator, so it needs to be divided into the corresponding secondary indicators, which can reflect the team’s work results and are executable indicators
  4. Don’t be held hostage to vanity metrics. For example, the number of paying users, daily number of broadcast hosts, such indicators are vanity indicators. When we are doing target decomposition, we must subdivide users and anchors into big anchors and large paying users
  5. After KPI decomposition, corresponding data kanban is needed to monitor the completion of indicators and give early warning of risks. We will make corresponding daily, weekly and monthly reports according to these KPI indicators. It will be delivered to the mailbox of the relevant person every day. The first thing the department heads do when they go to work is to read KPI data. The company’s management team will Review the completion of KPI together on a weekly/monthly basis.

Author: Anchuanqian (wechat id: Anchuanqian), assistant CEO and product director of a video broadcasting company. Responsible for: Q&A, social networking, mobile e-commerce, live video (show), etc., good at team management, KPI setting, data-driven product growth, user conversion retention and payment, data and user research, committed to creating vibrant products!