In this paper, the effect of different sensors on the observer performance of vehicle suspension system is investigated. For this purpose, the concept of observable degree analysis is used to quantitatively measure the observability for different sensor choices. A new method, for determining the observable degree of linear time invariant (LTI) systems has been developed on the basis of distance of system from set of similar unobservable systems. A long distance is equivalent to a strong observability and a short distance is equivalent to a weak observability. The zero distance means that the system is unobservable. Since the distance to different unobservable modes can be determined separately, a comprehensive investigation of system observability and the effect of different sensor choices on the observer performance can be provided. In the following, the observable analysis of the suspension system was performed based on the proposed method and the effect of different outputs on the observer performance has been investigated. The results show that when the observable degree is increased for a specific sensor, the observer gain is decreased and consequently the sensitivity of observer relative to the noise and measurement errors is decreased. The increased accuracy of observer demonstrates a good conformity between observable degree analysis and observer performance. Also, a comparative study showed that, contrary to previous criteria that only considered a certain aspect of observability, the proposed method is more comprehensive and realistic, and the results obtained from the previous criteria can easily be achieved through the proposed method.