Product metrics are data points that PM tracks and analyzes to assess the success of their product. Metrics and Key Performance Indicators (KPI) help all stakeholders in an organization determine how customers are interacting with a product, the value it brings a company, and how it can be improved upon.
Some examples of product metrics include monthly recurring revenue, paid conversion rate, churn rate are all examples of quantifiable product metrics. There are many product metrics to choose from. Questions to ask include, user adoption rate, customer retention rate, or churn rate. Some metrics tie back to business goals such as cost to acquire new customers, lifetime value of the customer, or the average revenue from the customer. PM needs to check if the metrics align with the future direction of the product in the next 2-3 yrs. Metrics for future direction include sessions per user, number of active users, and sustained feature adoption.
Product metric data can also be used by marketing, sales, and engineering teams to make better data-driven decisions on the future direction of the product. If there are no product metrics measured, then the onus falls on PM to guesswork the next steps of the product without evidence or measurement.
Metrics builds team alignment. When metrics are aligned with all stakeholders, essentially everyone has agreed on the reasons for releasing a product or feature. Hence it’s easier to have a discussion about design, or development or release timeline when everyone in the room agrees on why this thing is being released in the first place.
Product metrics are easy to present as a dashboard to executives along with product roadmap. The metric dashboard will prove sufficient quantifiable evidence for the executive to buy-in towards the future direction of the product.
You can also use your product metrics to check for an early warning signal on any issues with the product, customer experience, or features. Metric measurement feedback can be used to monitor issues such as any particular feature that was never used by the customer, low adoption rates, high churn rates, or steep drop off on monthly visits.
Let’s define some of the most often used metrics in software. Remember that we cannot use a single set of metrics to serve an entire company. A single set of metrics will be infective in capturing the target goals of all stakeholders including marketing and sales.
Teams tend to diverge in terms of the metrics they care about. Although they all may share a common high-level mission, they contribute to the mission in different ways and so their success must be measured differently. The growth team is focused on engagement in one part of the product; the marketing team on an entirely different part.
Top Product Metrics for a PM
Monthly unique visitors: Visitors to your website or app measured for a period of one month, Count only unique visits over the time period
Customer acquisition cost (CAC): Cost to acquire new customers. Scaling a product depends on the CAC. Customer Acquisition Cost is how much it costs for you to acquire one customer. It factors in a variety of expenses like advertising costs, the cost of any software your teams use, and employee salaries.
Net Promoter Score (NPS): The Net Promoter Score (NPS) tells you the percentage of your customers who would recommend your product. This is based on surveys and customer feedback.
NPS uses the question “How likely are you to recommend the product to someone” and asks the respondents to rate it on a scale of 1-10. Promoters are the ones who rate it in the range of 9-10 and detractors in the range of 1-6. Subtracting the percentage of detractors from that of the promoters gives you the NPS.
The number of customer tickets filed: Indicates issues faced by the customer over a new release of a product or feature Use this as an early detection scheme in your product.
Active users: Number of active users of the product. The Monthly Active Users (MAU) metric measures the number of different users who open your product within a 30 day period. The Daily Active Users (DAU) metric provides that information daily.
Monthly recurring revenue (MRR): Very critical metric especially for a SAAS company. It is a great way to track new revenue growth on a consistent basis over time, as well as to measure the amount and size of new customers that are added each month.
Total annual recurring revenue (ARR): Total ARR or annual recurring revenue is your monthly recurring revenue (MRR) x 12. It is the annual value of recurring revenue from all customers.
The lifetime value of a customer (LTV): Lifetime value is the estimated net revenue from the customer over the life of the relationship. You multiply the average profit per month (from a customer) with the average lifetime of a customer in months.
Customer Satisfaction Score (CSAT): CSAT is the average satisfaction score of customers. The score can be a given for a particular feature or UX experience of the product. User survey questions such as How satisfied are you with this feature or How would you rate your experience from this service are typical CSAT questions.
Customer Retention Rate: Customer Retention Rate (CRR) measures the rate of existing customers that continue to use your product, or subscribe to your product, for a defined period of time.
If a customer is NOT retained then they are categorized as a churn. Churn rate is another metric that can be measured along with the retention rate. Product managers pay attention to retention rates because a poor product experience for the consumer is often a churn factor.
Customer Conversion Rate: The customer conversion rate measures the rate at which your customers start paying for your product either via a one-time purchase or monthly subscription. This is a great metric to know how well you are doing to turn prospects into customers of your product. It is measured by taking the number of new paying customers added for a month and dividing that by the number of leads added during that month.
Churn Rate: Churn Rate is the percentage of customers who stop using your product every month. To get the churn rate, you have to divide the number of customers lost in a month by the previous month’s total customers. This metric is related to the customer retention metric. As a PM the churn rate is a critical metric and you need continuously strive to make the product better, to lower it.
Bounce Rate: Bounce Rate is the percentage of visitors who land on a page but do nothing and leave. It is good for measuring the performance of specific landing pages.
What should end goal of product metric measurements?: Product metric measurements can be used to confirm or modify any assumptions that you have about the new product release or features planned. Once confirmed with metrics the next step is to change the product roadmap or plan.
Any change in product roadmap should be communicated to all the stakeholders including the executive staff. Finally, once the stakeholders are aligned, you should reconvene with the development teams to discuss and execute the new plan and strategy.
Metrics should be included for every release of the product or feature and the cycle should be repeated as a feedback loop.
In the next blog, we will look at different frameworks available to identify, categorize, and decide on the final metrics for a product, that also ties back to the business goals.