Product metrics are quantitative insights into the health of a product. A product team can improve its decisions by tracking and analyzing these product metrics. Metrics can be used by stakeholders, marketers, and product managers to measure the impact of their decisions, identify problems, set goals, and track progress. There are different metrics based on the type of industry, stage of growth, and strategy of the business.
Why are Metrics Important?
Metrics provide accurate measurements about how the process inside the organization is functioning and helps in driving improvement.
Metrics help in improving overall results and aligning your team and processes with your goals. Metrics determine the priorities of the company and provide a picture of the company’s performance, ethos, and goals.
Metrics are useful for a company in various ways:
Metrics help in decision-making.
Metrics Drive the strategy and direction of the company.
Metrics help in measuring performance and driving improvement.
Metrics help in surfacing unnoticed issues that are important for a company.
Metrics convert customer requirements as well as the company’s performance to numbers that can be easily compared. This helps in determining whether the customer’s requirements are met or not.
Therefore it is important to choose the right metric for your business to build a strong product strategy and improve your sales. You need to know which one is suited for your business.
While it is true that no one silver bullet metric serves all businesses, we have compiled a list of some most important metrics that every product person should be aware of.
Types of Metrics for Product Teams
1. Monthly Active Users (MAU) and Daily Active Users (DAU)
The Monthly Active Users (MAU) metric measures the number of users who open your product within a month. The Daily Active Users (DAU) metric provides that information daily.
MAU and DAU provide you with a clear idea of how many active users you have on a monthly and daily basis. An active user receives value from regular interactions with your product. MAU and DAU give insight into user engagement and adoption MAU and DAU provide you with a clear idea of how long a user interacts with your product and shows you accurate engagement. Knowing how well (or poorly) your product retains users is critical for long-term growth.
2. Customer Satisfaction Score (CSAT)
The Customer Satisfaction Score (CSAT) is the average satisfaction score of customers influenced by a particular experience.
While CSAT is important to gauge customer sentiment, it should be used alongside other product analytics to get a balanced view of user health and engagement. Another best practice to keep in mind is timing.
3. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is how much it costs you to acquire one customer. There are so many factors that affect this. E.g. advertising costs, cost of the software you are using, employee salary, etc.
This metric primarily involves Sales and Marketing. Product teams can also affect CAC by providing product-led growth opportunities that cut down on Sales and Marketing costs. Free trials are a great example.
The lower the CPA, the better.
4. Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) measures how valuable a customer is to your company for an unlimited period as opposed to just the first purchase. This metric helps you understand a reasonable cost per acquisition.
CLV is the total worth to a business of a customer over the whole period of his relationship with the company. It’s an important metric as it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth.
Knowing the CLV helps businesses develop strategies to acquire new customers and retain existing ones while maintaining profit margins.
The formula for measuring CLV is:
CLV = Customer revenue minus the costs of acquiring and serving the customer
Functions can be added to this simple formula to reflect multiple purchases, behavior patterns, and engagement to predict CLV.
5. Monthly Recurring Revenue (MRR)
Monthly recurring revenue is the revenue generated by your product in a month.
MRR is calculated by considering the MRR at the beginning of the month and adding it to the revenue that you got from the new customers and then subtracting it from the churned revenue.
This is one of the best metrics for SaaS-based businesses.
MRR is calculated by multiplying the total number of paying customers by the Average Revenue per Account (ARPA).
MRR= Customers * ARPA
For example, if you have 1000 customers who spend an average of $50 per month, your MRR is $50,000.
1000 x $50 = $50,000
6. Customer Churn rate (CCR)
The customer churn rate, also known as the rate of attrition or customer churn, is the rate at which customers stop using your service. It is most commonly expressed as the percentage of service subscribers who discontinue their subscription within a given period. A high churn rate could adversely affect growth and profit. For an app to grow, the number of new users must be higher than the number of users who leave.
Customer churn rate = [users at the beginning of period- users at the end of period/users at the beginning of period] * 100
For example, You have 500 users at the beginning of the month, and at the end of the month, you have 400 users.
So customer churn rate: [(500–400)/500] * 100= 20%
7. Customer Retention rate (CRR)
Customer retention rate (CRR) is the percentage of customers your company has retained over a certain period.
It is the reverse of the customer churn rate, which shows the percentage of customers a company has lost over a specific period. When measuring your customer retention rate, make sure that you choose a period that works for your business and the way your customers buy. For example, it makes no sense for a car manufacturer to measure the retention rate within a year because hardly any new car buyers will buy another car after just 12 months.
Formula to calculate customer retention rate.
Customer Retention Rate = ((E-N)/S) *100
E = Number of customers at the end of the period.
N = Number of customers acquired during the period.
S = Number of customers at the start of the period.
A product is not just only software, it is more about user satisfaction and the values it is providing. Therefore it is very important to choose metrics that reflect the user’s needs. Users should be at the center while choosing the metrics. One should accentuate metrics and KPIs that impact long-term growth in revenue.