👋 Hey, it’s Sundar! Thanks for reading experiMENTAL: my newsletter helping founders and marketers navigate the CRAZY world of consumer tech with secrets from 10+ years in Marketing at Uber & others.

In today’s newsletter, you’ll learn:

• why a health score is necessary for better decision making

• what Uber used as its health score to keep a balanced marketplace

• how to pick your company’s health score ensuring a long term healthy business

The definition of a health score

Unlike a Northstar Metric (which I wrote about), a health score is a less common term in tech.

But, it’s just as important.

While a Northstar metric is best for long term strategy, a health score helps companies optimize in the short term.

A health score is also different than a key performance indicator because of it’s importance.

Think of a health score as the most important KPI. MIKPI.

Just kidding. No one calls it that.

Challenges with health scores

The challenges with health scores are that they’re not perfect indicators of health.

Yes, I know that’s confusing.

But, let’s look at humans.

Here are 5 vital signs we look at when we go to the doctors:

• BMI

• Weight

• Heart rate

• Blood pressure

• Body temperature

Now, I’m not a doctor but I know that not having a standard BMI doesn’t immediately mean you’re unhealthy.

It’s WHY you don’t have a perfect BMI that makes it healthy or unhealthy.

Let’s look at what Uber used to create a healthy marketplace to get a better understanding.

How Uber created a healthy marketplace

Every business (regardless of model) is built off supply and demand.

At low prices, everyone wants to buy and no one wants to sell.

At high prices, everyone wants to sell and no one wants to buy.

Ideally there’s an equilibrium where the # who want to buy = # who want to sell.

But, an interesting thing happens when you overlay revenue at Uber (chart below).

Revenue is not necessarily maximized where supply and demand intersect.

Depending on elasticities, curves, and other factors there’s a sweet spot that maximizes revenue.

For Uber, this revenue maximization happened at > 1x surge.

So, to track marketplace health Uber picked % of trips with surge.

% of trips with surge = # of trips with surge ÷ # of total trips

If you came in on Monday and looked at last week’s performance, you instantly knew if the marketplace was healthy or not.

(P.S. These numbers are illustrative)

Too low of surge = not enough demand

Too high of surge = not enough supply

By having a metric like % of trips with surge, Ops and Marketing teams could quickly assess the health of their marketplace.

Marketing may need to push on demand for next week.

Operations may need to onboard more drivers to get supply.

Here’s a fellow ex Uber operator who summarized it well:

With a singular health score, Uber was able to:

1. Align teams across silos

2. Measure marketplace health

3. Compare markets to each other

Now, how can you find your health score?

Find your health score

A health score must be:

1. An interaction of supply and demand

2. A ratio or percentage

3. Easily calculated

4. Actionable

5. a KPI

Having 10 like the blog above mentions is a recipe for disaster in my book.

As always there are nuances based on your business model.

Here’s what I propose as health metrics:

For all business models, the proposed health score checks my 5 criteria

1. Represent interaction of supply and demand

2. A ratio or percentage

3. Easily calculated

4. Actionable

5. a KPI

In addition, just like human health scores, you want these health scores to be in a range and not an exact number.

What that range is depends on too many factors for me to go into here.

Ecommerce & D2C

A healthy ecomm / D2C business means people are finding the products they are looking for.

You know a person has found what they’re looking for if they add to cart.

That’s why I recommend % of users that add to cart

If too many shoppers add an item to cart then your prices are likely too low.

If too few shoppers add to cart then your prices are too high or selection is poor.

That’s why % of users add to cart is a strong health score.

Metrics like AOV are useful but they reflect the health of the customer not the health of the business.

Services & Marketplace

Services and marketplaces are notoriously difficult businesses and I’m not sure that the singular health score I’ve proposed will be able to encompass every service and marketplace type.

Uber as an example is a marketplace but it’s heavily managed where Uber sets the price and has dynamic pricing. That’s why % of trips surged works for them.

AirBNB on the other hand doesn’t have dynamic pricing and is not as involved in price setting so it’s a more classic marketplace.

That’s why I recommend % of users that start transaction

For Uber, that’s “% start trip request”

For AirBNB, that’s "% start booking”

For Spotify, that’s “% start song”

For Netflix, that’s “% start movie or tv show”

These metrics allow teams to quickly assess whether their businesses are healthy.

Whether the user then completes / cancels a transaction is more complex.

Social networks

Social networks provide value by surfacing relevant content to users.

Every social media company has a way to engage with content (like, subscribe, repost, etc.).

That’s why I recommend % of users that engage.

It’s a quick indicator of whether the content produced, surfaced, and consumed is being relevant.

Teams can then attack the problem through product fixes and growth experiments depending on which side of supply and demand there are issues.

Recap

That’s it for this week. Some key takeaways:

• Health scores are important to monitoring the health of your business

• It’s hard to pick a health score because they’re not always perfect

• Uber used % of trips surged as a way to measure marketplace health

• If you pick yours, it needs to hit 5 criteria

👍️ Loved it? 👎️ Hated it? Let me know!

Missed the last article?

Check it out: Be data obsessed not data driven.