An Overview of Product Management KPIs
Being a product manager, you juggle many responsibilities and roles to achieve success for SaaS products. Like any other team, product management teams also set clear goals, guide strategies, allocate resources, and identify risks and issues with the help of SaaS product key metrics.
The old method of decision-making by your instinct, guesses, and limited feedback might have worked in the past. But today competition is cutthroat. This era has laid the foundation for smart strategies.
Product managers need to be strategic thinkers, intuitive, and data-driven to gain an edge over the competition in the SaaS industry. They should know the importance of business metrics, and most importantly, they need to know what product management metrics to track, measure, and analyze.
Why is it Essential to Measure SaaS Product Metrics?
SaaS product metrics deliver critically valuable insights for SaaS products. They are a fantastic way of evaluating how successful a SaaS product has been and what strategy you should adopt for further success.
Point to remember: meaningful metrics are always actionable, auditable, and accessible.
Teresa Torres, product discovery coach at Product Talk, said, "before you take new work, ask what metrics you are diving into.”
Jim Semick, founder and chief strategist at Product Plan, also said, “you can get a valuable insight to guide your product decision and roadmap. It is a good practice to begin discussing success metrics as early as you can during the development of the product and well before it reaches clients.”
SaaS product metrics and KPIs are helpful for:
- Product managers can win over stakeholders by presenting a roadmap for business objectives.
- Product metrics help in strategic thinking and better decision-making.
- Product metrics measure risk and challenges and can provide early warning signals.
- Product metrics fuel data-driven strategies and lay the foundation for success.
Essential Product Management KPIs
Here is a list of 20 of the most important SaaS product metrics that business and product management teams should keep an eye on.
Depending on your particular focus, some business metrics may be more relevant than others.
Pro tip from Usermaven: Make sure you have all leading and lagging metrics in your bucket.
1. Trial-Customer Conversion Rate
What it is: Trial conversion rate measures the percentage of SaaS business clients that have shifted from a trial period to a paid account. It is also referred to as the free trial to paid conversion rate. This metric is based on the type of trial you have to offer.
Why it is important: The free trial conversion metric is significant to track since it offers you a specific approach to improve how you attract new users.
In addition, for client acquisition, most SaaS businesses depend significantly on free trial offers.
How to calculate it: ƒ count (trial to paid users) / count (trial user)
2. Customer Retention Rate
Image source: Nexcess
What it is: Customer retention rate refers to the percentage of active users who continues to pay for a SaaS product over a given time period. Therefore, maintaining retention in product management results in positive outcomes for the overall SaaS business.
Why it is important: Customer retention measures not just a company's ability to acquire new customers but also its ability to keep active users happy. It also improves ROI, promotes client loyalty, and attracts new users.
How to calculate it: ƒ count (users in period 2) / count (users in period 1)
3. Customer Churn Rate
What it is: The customer churn rate is the opposite of the retention rate. Customer churn measures the number of customers leaving your service each month.
Why it is important: Companies are likely to have customer churn. Some new customers will not like the software or simply have no reason to pay again. By tracking the churn rate, app developers will determine what changes should be made, such as changing UX, optimizing feature adoption, or adjusting prices.
In addition, it is important to track the churn rate because lost customers mean lost money. A company's foundation might be severely impacted if it loses enough clients due to a high churn rate.
How to calculate it: ƒ count (lost users in period 2) / count (users in period 1)
Product or Customer Engagement
4. Active Users DAU, WAU, MAU
Image source: Next Scenario
What it is: These are acronyms for daily active users, weekly active users, and monthly active users. They measure the number of users who engage with a SaaS app within a certain period of time. This customer engagement metric is also called stickiness.
Why it is important: These business metrics are significant for understanding how important your product is to active users. It offers a snapshot of user retention.
For beginner startups, these customer engagement metrics are key to evaluating traction and the company's revenue.
In addition, these metrics help to understand the actual level of stickiness for SaaS products.
How to calculate it: The definition of active users may depend on the nature of the SaaS product. Acknowledge your definition of active users and sum up all genuine (count only once) number of users within a certain period of time.
5. Cohort Retention
What it is: Cohort retention is a success metric for product managers to measure whether a particular group of existing customers continue to use your services or pay for your SaaS products over time.
Why it is important: Cohort retention analysis is a great way to find out how well your product is serving different groups of clients. It is an important step in knowing what particular insights require focus and what changes should make to keep users around for longer.
Once you identify a group of users with a low cohort retention rate, you can dig further into the group's traits and behaviors and explore underlying reasons for the high churn rate.
How to calculate it: The calculation depends on the type of product. For example, you may choose to calculate tracking DAU, WAU, or MAU as defined in this blog.
Alternatively, for a SaaS product, you may calculate these metrics as the renewal of paying customers.
6. Time in App
What it is: Time in the app measures how long clients spend in software over a period of time.
Why it is important: This metric helps to uncover trends in usage time which is a proxy for how valuable clients find your app.
How to calculate it: Like all other metrics in this category, this will also determine how your application is used. If your app is meant to be used daily, you'll calculate time-in-app by simply adding the active time people spend in your application each day. Then you may analyze how daily time-in-app is trending over a time period.
7. Number of User Sessions
What it is: Track how many and which actions customers take while using your SaaS product.
Why it is important: This product metric KPI is significant to understanding how usage pattern changes. This data insight helps you update features and improve functionality within the app. As with the rest of the metrics, you can compare multiple cohorts to understand this KPI.
How to calculate it: First, define relevant important actions to track your software. Then you may simply count actions engaged per session, or for better understanding, you can stack actions into multiple groups and count actions within each group.
8. Net Promoter Score NPS
Image source: Product Plan
What it is: Net promoter score NPS is a customer engagement metric that helps to understand how satisfied your client is with your SaaS product and service. This can help guide product development and new features from a product perspective.
Why it is important: The net promoter score is a crucial metric for several reasons. It is easy to understand and gives a quick overview of customer loyalty. This metric can communicate on all company levels. The greatest advantage of NPS is its correlation to company and revenue growth.
How to calculate it: Calculating NPS is very simple. You must collect responses to a simple question: “How likely are you to recommend this product to a friend or colleague?” And then, collect feedback into three groups to determine your percentage of detractors, percentage of promoters, and neutral responses.
9. Customer Satisfaction Score CSAT
What it is: CSAT is a proxy of customer satisfaction or happiness, typically collected from a short survey.
Why is it important: Is your CSAT score really an important metric to track? Data suggest that 89% of users make a secondary purchase after positive user feedback. This metric shows how your customer feels about your product. This is all about knowing your clients and adapting to feedback to beat their expectations.
This is an effective way to drive long-term revenue. CSAT can get more satisfied clients, and these clients turn into loyal customers. These are the people you need to make your business grow.
How to calculate it: Calculating CSAT is similar to NPS. You ask survey questions. For example, "how would you rate your onboarding experience" or "how would you rate your experience using our product."
You then take positive feedback and divide them by the total number of responses to get your CSAT percentage.
Formula: ƒ count (Positive responses) / count (Total responses) X 100
10. Number of Support Tickets Created
What it is: This metric measures the volume of support tickets per user created for a SaaS product in a given time.
Why it is important: This metric indicates the trend in your customer's need for support and evaluates your team's performance in relevance to support volume. Try to adjust for changes in the size of the user base and number of customers.
The overall support ticket volume will help you understand that new changes improve customer experience. The overall volume also enables you to understand If your support staffing needs to change to sustain inbound support requests.
How to calculate it: This is a simple calculation of just adding up the numbers of support tickets created within a given period. Then, segment your support ticket by user cohort or severity to get detailed valuable insights.
11. Average Feedback Response Rate
What it is: This is a metric of customer participation in your in-app surveys or other feedback forms.
Why it is important: Average feedback response rate is the best practice for survey sample size. Just how much feedback do you require to understand your audience exactly? The more feedback, the better, right?
Though your company situation may change, one concept holds true. Segmenting your users and guaranteeing you hear the right voices is the key to success.
How to calculate it: ƒ count (survey responses) / count (survey delivered or shown)
12. Feature Fit Index
What it is: Feature sentiments rating track how users feel about the new or existing feature of a SaaS product. A sentiment that works quite well is the feature fit index. It is a technique to gauge feature adoption with a simple question.
Why it is important: When FFI is correctly applied, it offers an incredibly efficient way to determine which services or features resonate with your clients. It helps the product development team to determine the success of new features and the removal of less valued legacy functionality that customers no longer use.
How to calculate it: ƒ count (respondent who would be disappointed if the feature was removed) / count (total respondents)
Other Metrics for SaaS Companies
13. Monthly Recurring Revenue (MRR)
Image source: MRR.io
What it is: Monthly recurring revenue MRR is another foundational metric to predict your revenue. It is the amount of recurring revenue generated in a given month after subtracting one-time fees.
Why it is important: Monthly recurring revenue is one of the most important KPIs for all SaaS subscription businesses and allows you to track new sales, churn rate, upsells, and renewals.
MRR is a core metric to track how subscription revenue varies over time, which facilitates revenue predicting and helps understand how successfully the company is or isn’t growing.
How to calculate it: You can calculate monthly recurring revenue within your accounting software.
14. Customer Lifetime Value LTV CLV
What it is: Lifetime value LTV or customer lifetime value track calculates the full value of revenue from clients over the entire time they remain a user.
Why it is important: Tracking your customer lifetime value helps to determine how much you should spend on acquiring users. The amount you spend relies on how much a user is worth. This makes CLV one of the most important KPIs for SaaS user success teams.
Lifetime value is affected by contract value, upsell/ cross-sell revenue, customer churn rate, and retention rate.
How to calculate it: Annual contract value multiply by average customer lifetime (in years).
15. Customer Acquisition Cost CAC
What it is: Calculate the total cost spent on acquiring a user, including onboarding support, sales, and marketing.
Why it is important: Customer acquisition cost CAC is a crucial metric for understanding the value of customer growth. It is appreciated for measuring the efficiency of your customer attaining strategy and changing it over time.
It is also an also effective metric for investors, letting them gauge the scalability of your company.
There is no exact CAC number that is positive or negative; rather, what you can commercially afford to spend is driven by the lifetime value of your users.
How to calculate it: Sales cost + new customer support cost + marketing cost.
16. Average Revenue Per Unit ARPU
What it is: This metric is the total revenue your product produces averaged across your users. Determining your APRU helps you find prospects to optimize your positioning and pricing by displaying how much money users are willing to devote to your product. It is a core KPI for SaaS companies.
Why it is important: ARPU is one of the most significant KPIs for any SaaS business as it informs you how much money you are earning from each customer in a particular time frame – valuable information for product managers, marketers, and executives alike.
How to calculate: ƒ count (Total annual recurring revenue) / count (total of paying customers)
17. Cash Burn Rate
Image source: Bench
What it is: This metric measures how much net cash the entire business consumes in a particular time period, typically monthly or yearly.
Why it is important: Numerous KPIs can be used to assess the growth and health of a SaaS company. However, since many SaaS firms aren't successful during their early stages of development, it is critical to understand how many months or decades of runways you have.
In addition, cash burn is a crucial measure to consider when estimating the firm's alternative growth and expenditure scenarios. Investors also review it during fundraising rounds.
How to calculate it: All period money in – all period money out.
18. Sales Qualified Lead SQL
What it is: A sales-qualified lead (SQL) is a potential customer who has been prospected and validated – first by the marketing department, then by the sales team – and is ready to go forward in the sales process.
Why is it important: This is the foundation process that serves as the starting point for all subsequent chain processes. This determines how to acquire leads, reply to them, and convert them into a prospect who is likely to purchase.
How to calculate it: ƒ Count(Sales Qualified Leads)
19. CAC Payback Periods
What is it: The customer acquisition cost payback period is the total number of months it requires to earn back the money invested in getting new customers on board. You should be able to recoup your customer acquisition cost in 6 to 9 months.
If you don't have a strong handle on this, your business might face a cash flow problem.
Why is it important: Understanding CAC and CAC payback metrics is critical to determining the cash flow coming into your company.
You might be spending millions, if not thousands, of dollars on unproductive techniques of acquiring new users if you don't understand CAC and CAC payback.
Furthermore, CAC payback may assist in determining how much you should spend per client as well as forecasting future business development.
How to calculate it: CAC/Average MRR x Gross margin%
20. Roadmap Prioritization
What it is: A product roadmap is a strategic plan that includes desired outcomes and major steps needed to reach them. Roadmap prioritization is the mode of prioritizing work in your product roadmap.
Why it is important: This serves as a communication tool, a high-level document for product managers that helps articulate strategic thinking and why behind the goal and the plan for getting there.
There are multiple prioritization models. Most are designed for cost/ benefit ratios that let the product managers decide what to work on next.
How to calculate it:
- Reach x Impact x Confidence/ effort
- Reach: How many features impact the audience in a given time?
- Impact: How much features ( intensity) affect the audience.
- Confidence: How much do you trust your impact assessment?
- Effort: Estimate the total resources to quantify effort.
How to Choose Software for KPI Metrics?
You can choose software KPI metrics according to your need or your SaaS product's long-term or short-term goals. Metrics analysis tools help in building clearer and more effective strategies.
For example, if your goal is to improve user stickiness, you want to track your daily active users / monthly active users, duration, session, or introduce interesting and valuable features.
You can also make your SaaS product valuable by offering integration to a widely used application like Slack, Google Drive, and Evernote by implanting an interrogation platform.
This is an effective way of integrating your product into the current ecosystem, directly influencing session duration and DAU/MAU.
Likewise, if you want to improve the overall trial-customer conversion rate, you can make an exhaustive customer onboarding strategy that will include creating useful resources, newsletters, and email marketing.
Anyone can feel overwhelmed in the world of SaaS business KPIs and SaaS product metrics. There are so many advanced tech tools that offer to track anything. These KPIs will let you take your SaaS product to greater heights in no time.
Product managers can get accessible and actionable insights to design valuable products with the right SaaS product management KPIs and metrics.
KPIs like retention rate, stickiness, and understanding of how users are engaging with their products, while NPS and CSAT benefit them to understand the value users receive.
To calculate the health of the SaaS company, KPIs like retention rate, LTV, MRR, and ARPU come in handy.
What are Growth Metrics for SaaS?
Growth metrics are used to assess a company's progress and offer information about its overall performance. They assist you in setting objectives and forecasting your company's development.
How is the Growth of a SaaS Business Measured?
You can track a company’s progress with the growth KPIs like:
What is SaaS Performance?
A SaaS performance management solution supports meeting the demands of both users and organizations. A company uses this method to leverage its assets, people, money, and technology to accomplish strategic business objectives referred to as performance management.