Awkward Reality #363
The Vitality Index measures the percent of revenue from new products. But you should also track the Profit Vitality index… your percent of gross profits from new products. It avoids the problem of people gaming the Vitality Index by calling a product “new” when it’s just a “tweak’ that delivers no added value.
It’s immaterial what you think of your new product. All that matters is what your customers think of it. If they see new value, they’ll pay a premium and you’ll see higher profit margins. If you’re truly innovating, your profit vitality index will be higher than your revenue vitality index. If that’s not the case, your newer products are providing less differential value to customers than your older products. Probably something you should know, right? See the white paper, New Innovation Metrics.
More in 2-minute video, Employ new growth metrics.