Managing to develop an effective product roadmap goes beyond a product manager’s (PM) vision or intuition, even if these aspects matter as well. In an increasingly data-driven business world, the product management field isn’t exempt from this need. Online data analysis tools will help you sharpen your product sense and give more weight and credibility to the decisions you make and submit to stakeholders.
As a PM, collecting information about your product performance, its features, the market adoption, etc., is essential. The right product performance metrics will give you invaluable insights into its health, strength and weaknesses, potential issues or bottlenecks, and let you improve it greatly. In this article, we will go deeper into the definition of product KPIs: what they are, who needs them, and why; then, we will go over the steps to find the best product success metrics; and finally, we will provide some useful examples.
What Are Product Metrics?
Product metrics are quantitative performance measurements used by businesses to gain insights into various areas like product development, pricing, quality, and more. By using interactive KPIs, product managers can optimize product strategies to ensure business growth.
Product KPIs can be related to user requirements, size, quality, product growth, or user comfort. They can evaluate architectural measures, quality measures, software complexity, or functional size. However, depending on who you are or to who you address your report to, product analytics metrics might vary: at the end of the day, stakeholders care about cash but the PM wants to figure out how customers are interacting with the product.
And that’s where the big challenge lies. Picking up the correct metrics is not as easy as it seems, and even seasoned product managers might not always measure the right things. First of all, not all products are the same and thus, not all data will be collected with the same importance – some are more valuable than others. Another trap executives often fall into is the monitoring of an ever-growing number of indicators (for the fear of missing something), which might very well cloud their vision.
Let’s get started by looking at the different categories into which product strategy metrics can be divided.
Types Of Product Metrics
Now that you know the definition, it is time to start digging deeper into the topic by looking at different categories of product KPIs. A common technique to break down the different types of key product metrics is using the AARRR framework, coined by venture capitalist Dave McClure. Essentially, it differentiates between the various stages of a customer journey to assist businesses in understanding which actions need to be taken to ensure a lead turns into a paying customer. Let’s dive into them.
- Acquisition: As its name suggests, this stage refers to a company’s actions to spread its main message and attract its target audience. Businesses use several channels for the acquisition stage such as SEO, social media, blogging, emailing, and paid ads with different strategies. Common indicators used at this stage include the number of new signups, app downloads, website traffic, and more. Of course, the indicators tracked at this stage will depend on the audience and the business model. They are invaluable tools for product managers to understand which channels work best for the company’s target audience.
- Activation: This stage refers to users taking the desired actions after their first interaction with your company. These actions will define whether the user is going to be considered a potential customer or not. Just like with the acquisition stage, the desired actions will depend on the business model. For example, Dropbox used “storing at least one file” as its main activation metric. After all, if a user doesn’t actually save a file, it is impossible for them to understand the value of the tool, hence, they are not considered an actual user. On the other side, in their start-up years, Facebook defined their activation as “adding 7 friends in 10 days” as this was an indicator of long-term usage.
- Retention or engagement: This part of the framework refers to encouraging your activated users to come back for more, which is commonly done by assessing product engagement. If your activation metric is signing up for a free trial, tracking the number of times users actually use the product during that free trial is a great way to measure engagement. This is arguably one of the most important stages in the process, after all, it doesn’t matter how many people you activate if they end up going away after.
- Revenue: While activated users are valuable, paying users is the end goal. This next stage also referred to as monetization, measures how well your company is turning engagement into revenue. Of course, as in the other stages of this framework, the metrics tracked here will depend on the business model. While some businesses offer free products or services and gain revenue from ads, others use subscription models based on different features.
- Referral: The referral measures the likeliness of your paying customers to recommend your product to their peers. While this might sound like a straightforward process, it is actually very complex to measure as people do recommendations in many different ways. That said, it should be taken very seriously as recommendations are considered one of the most effective ways of gaining new customers. Some ways in which it can be measured and influenced are through surveys, referral programs, social sharing widgets, and more.
Product Metrics Examples You Can Use
Now that you know the different types of product metrics thanks to the AARRR framework, we will provide you with a list of product metrics examples for each stage. Here, we will deviate from the framework a little bit, by dividing the retention stage into two parts: retention and engagement. Each of these examples, generated with a professional KPI tool, will enable you to monitor your product performance, according to what you decide to prioritize on your strategic roadmap. Let’s dive in!
1. Acquisition metrics
This set of KPIs tracks the success and costs of your acquisition efforts. As mentioned before, these are the strategies in place to recruit potential customers.
- Customer Acquisition Costs (CAC): all the costs incurred in turning someone into a customer. They encompass marketing, sales, advertisement, etc. It is a great indicator to understand if the monetary and human resources invested in acquiring new customers are bringing revenue back to the company. It is simply calculated by dividing the costs of sales and marketing by the number of new customers.
- Website visitors: While this is often considered a vanity metric, it can still provide valuable insights if you look at it in the correct context. If you are implementing different acquisition strategies in social media and email campaigns that have the aim of referring people to the website, then tracking the website visitors coming from the different touch points can serve as a valuable indicator to understand the success of your strategies to generate product awareness.
- Lead generation rate: This straightforward KPI tracks the total number of leads by a particular channel. Given that the acquisition process requires businesses to target their potential customers through different touch points, it is a good practice to compare the lead generation rate for the different channels to understand which one is the most successful and which areas could be improved.
2. Activation metrics
The activation stage is also known as the “aha moment” this is because it is considered the moment when the customer realizes the value of your product. Product adoption metrics to track this include:
- Activation/adoption rate: Arguably one of the most important product management metrics to track in the activation stage, it monitors the percentage of customers that move from regular users to active users. In order to measure this, it is necessary to first define the activation action for your company. This action should signify a customer getting value from the product, as we mentioned above with the Dropbox and Facebook examples.
- Time to conversion: This indicator tracks the time it takes a customer to complete the desired action from their first contact. As seen in the example below, this indicator can be tracked for different products as well as marketing channels or campaigns to let you understand the success of your efforts. A good practice is to set a target and evaluate your performance based on it.
3. Engagement metrics
Product engagement metrics also known as product usage metrics, are very useful when you want to understand how users interact with your products and identify where there is room for improvement.
- Active users at a specific time: This product KPI example tracks the number of active users on a daily, weekly, or monthly basis and it is used to measure how engaging a product actually is. The time frame in which it is measured will directly depend on the type of product. For instance, a gaming app might expect users to interact with the product on a daily basis while B2B companies might expect a couple of interactions a month. The assumption for this indicator is that the more a user uses your product, the more engaged he or she is with it. Therefore, you want to keep it as high as possible as an engagement measurement.
- Product usage (sessions per user): a good starting point is to track how often users login to their accounts. In other words, it is the number of sessions per user and it is a great indicator for engagement and behavior analysis. Taking medians over averages is preferable, as they give stronger statistics that are less sensitive to outliers.
- Number of key user actions per session: after selecting specific user actions that matter to you (e.g. clicks on a share button), trace them over time for various cohorts of users. You can compare the difference between retained and churned customers.
- Feature usage: how often is a feature used, and how long are users spending on it? What are the profiles of people using this or that feature? Are there seasonal trends in their usage? These are key questions you can answer to build a specific feature profile.
4. Retention metrics
Once you understand if users are engaged with the product, it is also important to measure your efforts toward retaining them. The set of metrics below will help you in this aspect.
- Customer retention: it measures the number of customers that repeatedly do business with you. It is important to keep it high because it is far less expensive to retain customers than to acquire new ones.
- Churn rate: the churn rate is the opposite of retention, as it measures the opposite (i.e.. the customers that stop doing business with you by unsubscribing for instance). It is important to compare it to previous periods, as a sudden high churn rate might mean that your customers are not happy with a change in features, pricing, or structure.
- Customer satisfaction score (CSAT): There is no better way to ensure retention than keeping your customer satisfied. The CSAT measures the overall contentment of your users on a scale of 1 to 5. This information can be gathered by performing customer surveys on a specific feature or the overall product or service on offer. Doing it for specific features can be a great way to gather feedback for product development. That is why this indicator is also used amongst other product quality KPIs.
5. Revenue metrics
These product growth metrics are rather high-level and will help you shape or re-shape your strategy. These metrics result from the actions of your customers and how they affect your bottom line. They include:
- Monthly Recurring Revenue (MRR): evaluates the total amount of revenue a company expects in a given month. The MRR goes hand in hand with revenue churn, which measures the percentage of revenue your company loses each month because of downgrades (or churns). It is more important to pay attention to this churn than to the general logo’ churn rate: serving fewer customers but getting paid more is in the end more important than serving a multitude and getting peanuts.
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- Average revenue per user (ARPU): The ARPU is a KPI commonly used in SaaS businesses and it tracks the amount of revenue a company expects to get from an individual user. Tracking your ARPU closely can help you in understanding if you are targeting the correct audience as well as the correctness of your pricing strategies.
- Customer Lifetime Value (CLTV): measures how profitable your customers are in the long run, by forecasting the average amount of money you can make out of a customer. The higher it is, the more sustainable is your company. It also helps in identifying marketing campaigns where you spend more for a customer than he is worth it in the end.
6. Referral metrics
This set of metrics tracks the referral actions taken by your customers. These referrals can be voluntary via sharing buttons on your products, or by implementing a referral program which is a common practice used by businesses to get their customers to recommend them to their friends and family.
- Net promoter score: one of the customer satisfaction metrics that will let you know how likely a user is to recommend your product. It provides insights into both engagement and loyalty of existing customers as well as referral potential. As seen in the image below, the NPS is divided into promoters, passives, and detractors.
- Viral Coefficient: Another one of the important product experience metrics, this indicator measures the number of referrals coming from an existing customer that turn into new paying customers. It can be measured through referral campaigns or other actions such as social media sharing. By measuring the viral coefficient, businesses can understand potential customer growth as well as other aspects such as product quality. If a product has a low viral coefficient it could mean customers are not motivated to recommend it to friends and family.
- Participant conversion rate: Another metric that is mostly related to referral campaigns, the participant conversion rate tracks the number of people who have signed up for the campaign to tell others about your company. This doesn’t measure how many of these people actually shared the referral, the aim here is to understand how successful your campaign is at targeting users at its initial stage.
- Referral share rate: This KPI tracks the number of campaign advocates that actually shared the product or service with others. A more detailed analysis of this indicator would be to track it for the different channels, this way, you understand which ones are the most effective.
The list of product health metrics can go lengthy, especially when you want to test different hypotheses and correlations and need to gather a lot of varied data. However, as we stated above, it is more important to track metrics related to your top goals and avoid dispersion because you can easily lose focus on what matters the most.
The whole point is to learn from this insights to improve your product by making better decisions. As product consultant Vince Law states, “a metric will tell you that something is happening, [but] an analysis will tell you why something is happening”. Your product management metrics are not standalone objects that measure, they need a context to be understood that will give them a narrative and leverage for improvement. If the only thing you know is that your investment was successful without knowing why you won’t know what your next investment should be. To guide your product to success, the recipe is simple: use the scientific mindset that describes the hypothesis, defines a test, and measures it.
If you want to look at other types of examples such as product development metrics, explore our list of market research KPIs where you will find the usage intention, willingness to pay, technology adoption, and others.
Product Metrics Framework: How To Find The Right Ones
As a final section of this insightful guide, we will provide you with some tips to choose the best metrics to measure your product’s success, development, quality, and more. As we mentioned time and time again, the KPIs you choose will depend on your business model. That said, rather you are a retail or SaaS company, the process of selecting the right indicators is the same and we will look into it below.
1. Define your business goals
Setting up a data-driven product management starts with having a clear vision of the organizational goals your product serves. This is essential in the construction of your product strategy, so you need to define them clearly: do you want to grow your existing business? Retain the already-existing one? Target new customers? Goals can be defined as a specific target to reach (percentage, dollar amount, etc.), and should be aligned with your overall objective.
This first step is also very useful to put everyone on the same level: indeed, different members of your team might have different ideas about the goals of your product. This first step provides an opportunity to set up a consensus on where you are heading. Setting up goals at an early stage will also enable you to define efficient KPI targets later on.
2. Find the right metrics by asking the right questions
We all heard somewhere “what isn’t measured cannot be improved” – and this is what this second step aims at making your goals measurable. You want to know what you measure and why – and to do so, you need to start asking the right questions.
In this matter, the HEART framework from Google can be of good help: happiness, engagement, adoption, retention, and task success are five categories for which you can ask questions that will define the metrics you want to track. Foster collaboration with different people across the product team (managers, researchers, designers, engineers) to broaden the scope of questioning and develop impactful success metrics.
Do not reduce your questions to purely quantitative measurements that will give you a plain and direct result. Even though these metrics are easier to handle, collecting qualitative feedback will help in understanding why something has happened (why users are unsatisfied for instance). The combination of both will give you a balanced outlook on your product, and reduces the risk of losing sight of the most important success factor: the individuals behind the figures, the people who buy and use your product.
3. Avoid common pitfalls
In a perfect world, once you’ve asked the correct questions, your metrics should normally be well-defined and ready to go. However, this is reality and there are some traps we easily fall into – especially with data.
The first mistake is to measure all that you can for the sake of measuring. By doing so, you’ll drown in data and have a hard time discerning the meaning from the superficial, wasting valuable time and effort analyzing KPIs that create little to no insights.
Another mistake is to track metrics that look good on paper and for the ego, but that truly bring nothing to the improvement of your product: the infamous “vanity metrics”. Depending on your product, these metrics can vary, but they always come down to the same thing: they feel good but are not actionable. That can be, for instance, the number of downloads of your app: a fair amount of people might download the product, but it still doesn’t tell you anything about its performance or how successful it is. Instead, measuring the daily active usage or the referral rate might be more relevant.
To quote the advertising tycoon David Ogilvy: “Most people use analytics the way a drunk uses a lamppost, for support rather than illumination”. Don’t be like most people.
To avoid this from happening, our guide on KPIs vs metrics will tell you everything you need to know about choosing the right indicators to measure your product efforts.
4. Work on your data and visualize it
Once you have selected the right indicators for your product, you need to collect the relevant ones and analyze them regularly. Even better, finding a way to visualize all of your data on one single product metrics dashboard will help in understanding it all together and identify trends or correlations that would remain unseen otherwise.
A dashboard software is of great help to do so. You can connect all your data sources in one single point of truth and work on all of it conjointly – which is rather time-saving since you do not need to perform complicated cross-database queries: the software does it for you. It is also very helpful to share and communicate your insights with the visualizations a dashboard offers: whether you present them to your team members or your stakeholders, picturing all the metrics that matter on one control panel will make everyone work more efficiently.
Key Takeaways From Product Metrics & KPIs
As a product manager, you will define the product’s strategic goals, ask the necessary questions, and set up indicators to measure your progression to achieve those goals. These KPIs can be business-oriented, customer-oriented, or measure user engagement, as we have shown in our most important product metrics examples. Limit your metrics to a handful that will provide you with the most strategic insights, without consuming all your time and resources. Track these metrics on a professional business dashboard to get the overview you need for the general strategy, that you can share with team members, top management, investors, and stakeholders, demonstrating to them that you brought evidence backed up with information, on top of your product manager intuition.
Implementing a KPI dashboard software will help you greatly in communicating the insights you gained thanks to your product metrics analysis. If you want to benefit from business intelligence and data visualization, you should test our 14-day free trial.