Dec 7, 2022
6 mins read
A fully optimized product manager can increase company profits by over 34%. Product managers use product metrics to drive product growth and implement a product roadmap. As a result, these metrics are the most prominent tool for product managers in decision-making.
Product metrics are widely used for better results and performance tracking. They resolve challenges faced by the product teams. Product managers face challenges in choosing the best data analytics tool, the right metrics and bridging the gap between the two to extract valuable insights.
This article is a comprehensive guide to the top product metrics in product management. It outlines why they matter and how you can nurture your product with the right metrics.
Product metrics are quantitative performance measures that a brand tracks and analyzes to forecast the success of its product. Product metrics examples include conversion rate, churn rate, and customer retention rate.
Product metrics are quantitative performance measures that a brand tracks and analyzes to forecast the success of its product. Product metrics examples include conversion rate, churn rate, and customer retention rate.
Great products are data-backed. Product, sales, and marketing teams use data-driven insights to gauge customer behavior and nurture customer relations. Product metrics link to the product strategy and indicate how users interact with your product.
Here’s why product metrics are essential.
You might also find this interesting: Essential Product Marketing KPIs
Business metrics are quantifiable measures businesses use to track, monitor, and assess the failure and success of business processes. They are essential to communicate an organization’s progress in achieving short and long-term objectives. Business metrics fall under categories such as finance, marketing, human resources, information technology, investment, and more.
Business metrics are quantifiable measures businesses use to track, monitor, and assess the failure and success of business processes. They are essential to communicate an organization’s progress in achieving short and long-term objectives. Business metrics fall under categories such as finance, marketing, human resources, information technology, investment, and more.
Business metrics are of lagging nature. These are your business performance results after some time, such as at the end of the financial year. VCs and investors extensively use business metrics.
Below are some of the widely used business metrics related to different categories:
Financial Metrics
Marketing Metrics
Sales Metrics
In contrast, product metrics focus on evaluating the success of a business’s products. They are different from business metrics in terms of their leading nature. Product metrics are early indicators of success. You can broadly categorize them as traffic, monetization, and engagement metrics. Product managers use product metrics to correct their efforts if the product is underperforming.
Both metrics are vital to measuring business and product performance. Together they paint the whole canvas of your business growth.
Choosing the right product metrics is directly linked to the success of your product. The KPIs you select will depend on your business model. Keep in mind the following essential pointers while picking the right product metrics.
For instance, video streaming services or social media apps focus on the daily active users (DAU). In contrast, the e-commerce website might not benefit from the daily customer visits. A valuable metric for it is the number of orders placed.
Let’s dive deep into the top metrics for product management.
Active user metrics are a way to measure the stickiness of your product. If your customers keep returning to use the product, it reflects high user engagement. It means your product is delivering value to your existing customers. It also helps in customer retention.
Active users are primarily measured on a daily or monthly basis. They represent the total number of unique users in a day or during a month. Average daily or monthly active users are other critical numbers.
An even better way to measure stickiness is the DAU/MAU ratio. DAU to MAU is the ratio of the monthly proportion of active users who engage with your product in a single day. This ratio helps to understand how valuable your product is to customers. In addition, this ratio gives you the essential context for understanding the level of engagement and potential revenue.
The formula for the DAU/MAU ratio is straightforward:
Customer conversion rate measures how many customers take the desired action when they land on your product page. A high conversion rate means people like your offering and can get it. If your conversion rate is minimum, it means that there are barriers preventing customers from buying your product.
To calculate the product’s conversion rate, divide the total conversions by the number of unique visitors.
Churned users mean customers who have signed off or are no longer active. Customer churn rate is the percentage of customers that leave or sign off in a given time. For instance, your annual churn rate is the percentage of customers going per year. There are four types of churn: proactive churn, reactive churn, happy churn, and fake churn.
The churn rate can be calculated as follows;
The customer retention rate is the percentage of users that sign up or keep utilizing your services. The customer retention rate is also called the renewal rate. The retention rate can be calculated on a month-to-month or annual basis.
The formula for the retention rate is given as follows;
Customer Satisfaction Score (CSAT Score) & Net Promoter Score (NPS)
Both are customer experience metrics that measure the extent to which your customers enjoy your product or service. CSAT measures short-term user satisfaction with a service or product. And NPS is a long-term indication of user loyalty and satisfaction.
Use the following formula to measure the percentage CSAT score:
NPS is based on user feedback responses on a scale of 1-10 to a survey question. “How likely are you to recommend [your product] to a colleague or friend?” is the NPS question. You can categorize the customer responses based on the below ranges.
Measuring the NPS score is simple, add up your responses and subtract the percentage of detractors from promoters.
The formula for calculating the NPS score is as follows;
For instance, if 60% of the respondents are promoters, 30% are detractors, and 10% are passives, the NPS score would be 30.
The customer lifetime value (CLV) measures how much a business can earn from a typical customer as long as that person remains a client. When calculating the CLV, it’s vital to look at the average revenue made by a customer and the total profit.
It provides essential insights into,
Understanding what you earn from an average customer can increase or decrease your spending to ensure maximum profitability and attract the right customers.
The customer acquisition cost (CAC) is an essential product metric that measures how much a business spends to acquire new customers. It helps a company evaluate the overall value of a customer to the company.
The super simple way to CAC is by dividing the total costs to acquire customers by the total no of customers acquired at a given time.
MRR and ARR are essential factors that every SaaS business needs to understand and monitor. Monthly recurring revenue is the sum of subscription revenue expressed as a monthly value. On the other hand, annual recurring revenue is the sum of all subscription revenue referred to as a yearly value.
The formula for MRR is as follows:
As a product manager, you must define your product’s goals, ask relevant questions, and set up indicators to track your progress. For product managers, KPIs help solve problems, manage risks, prioritize activities, and delegate tasks to team members. Focus on the relevant metrics to provide you with the most productive insights without consuming your resources.
Measure the key metrics on a product analytics tool to give you a summary of product performance and share them with the top management and stakeholders.
Tracking the product’s performance and adding value are possible with the right metrics and tools. In a customer journey, there are numerous product metrics to measure. They are broadly divided into the following five categories.
Depending on the nature of your product, implement the metrics that best describe your customer journey. While setting up the customer journey and metrics, keep the ideal buyer’s persona in mind. The customer intent is the holy grail of what product managers want to understand and influence. Customer intent is the thoughts directing a customer’s actions and decisions toward a specific purchasing event.
You might also find this interesting: Strengthen your Customer Journey
Product metrics are an integral tool for the product manager to predict product performance and revenue generation accurately. Usermaven is the trusted choice of product managers to complement their product strategy. It is an easy-to-use tool that offers actionable insights for product-led SaaS Growth. You can measure and keep track of the product metrics for every stage of the customer journey.
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