What is vital in the software world except for a properly organized development process? It is data. Data rules everything, every your favorite application is based on working with data: Facebook, Netflix, Amazon, Uber, or a weather app. Hence, it is crucial for companies to maximally use data that shows changes in revenue and customers’ behavior. For this, product management KPIs and metrics exist.
KPI analysis is an integral part of the company’s work, but drawing diagrams is not enough. Companies should organize their workflows according to the received data. For example, Gipson Biddle, ex VP/CPO of Netflix, said that they used data in the forecasting and running A/B tests. These actions helped Netflix to figure out what their customers needed. So, they simplified the interface, moved on to the 5-star rating system, replaced it with Like/ Dislike tabs, and added the percentage match feature.
Let’s consider what KPIs and metrics you should use if you want to track the efficiency and popularity of your product. Don’t forget that these metrics need your interpretation and hard work, it is a road marker on your company’s way.
What metrics are used in product management?
Metrics show companies the level of success of their product. KPIs influence the marketers’ and product managers’ solutions, help them to define problems, and set production goals.
Companies can get metrics for analysis using a special tool, Google Analytics. It allows specialists to choose several of the most critical indicators for tracking and further work.
You should figure out what metrics you need based on your goals: to attract new customers, to increase the product’s popularity, or to add new features.
Product managers use KPIs in building product roadmaps, with KPIs, they can estimate commercial success, user experience, level of engagement, and a lot of other needed rates.
Here are the most popular KPIs that product managers use:
- Monthly recurring revenue (MRR)
- Customer Lifetime Value (CLTV or LTV)
- Customer Acquisition Cost (CAC)
- Daily Active User/Monthly Active User ratio
- Session duration
- Traffic (paid/organic)
- Bounce rate
- Retention rate
- Churn rate
- Number of sessions per user
- Number of user actions per session
- Net Promoter Score (NPS)
- Customer Satisfaction Score (CSAT)
Let’s group them according to their goals and consider them in detail.
1. Metrics for measuring the business success of a product
Financial metrics are most important for stakeholders: they show how much your company earns or can earn in the future. So, they are interested in revenue, customer acquisition cost (CAC), and customer lifetime value (CLTV). The product and the company’s future depends on these indicators.
1.1 Monthly recurring revenue (MRR)
The MRR metric measures the product revenue per month. You can calculate the MRR with the help of several actions: take the MRR at the beginning of the month, add the revenue that subscriptions brought to you, and deduct churned revenue from lost customers.
1.2 The average revenue per user (ARPU)
ARPU metric is used for calculating the revenue from one user per month or per year. With its help, the company can calculate future revenue if you are going to start the advertising campaign or change pricing.
There are two different kinds of ARPU: per new account and per existing account. The first kind of ARPU is based on accounts that appeared after changes in the product’s pricing or subscription plan. The second ARPU kind includes data from already existing accounts that were created before changing pricing.
You can find your ARPU with the help of the formula: MRR divided by the quantity of accounts.
ARPU metric allows companies to compare their results with competitors, define the most profitable acquisition channel and customer segment.
Perks of using the MRR and ARPU
These KPIs are especially good for SaaS companies whose revenue is based on customers’ subscriptions. In this case, the company works with the recurring customer and doesn’t need one-off sales. So it is easy to calculate the MRR to monitor the current company’s position.
1.3 Customer lifetime value (CLTV)
CLTV or LTV is used when the company needs to calculate how much money the customer can generate in the feature. LTV shows an average profit per customer until the subscription runs out. This metric shows how much it will cost you to attract a new customer at an early stage relative to probable profit per customer.
To measure CLTV, you should take some actions:
- To find how much time the customer uses the product before stopping;
- To define an average revenue per user;
- To multiply these values.
Perks of using CLTV
You can use this metric to test and choose new customer attraction channels, retention strategies, purchasing cycles, etc.
1.4 Customer acquisition cost (CAC)
The CAC metric includes all costs that the company spends on the customers’ attraction: work of sales team, marketing costs, advertising. Also, it can include the salary of employees in these departments.
To measure CAC, you should figure out a certain period of time and total revenue.
There is a clear way to define CAC: Take marketing and sales costs at the need period of time and divide them by the total number of customers per certain period of time.
Perks of using CAC
You can use CLTV and CAC to see the correlation between your costs on customers’ attraction and revenue. With the help of these indicators, you can make a decision about changes in the product’s pricing and marketing strategy.
2. Metrics for analyzing user engagement
These KPIs are not so interesting for stakeholders, but they are important for product managers and developers. Customer-oriented metrics can show you how customers work with your product. So, they give you answers to the questions below:
- How many customers use your product?
- How much time do they spend on a certain feature of the product?
- How long do they use the product?
- What is their reaction to the new feature?
- How many customers stopped using the product?
2.1 Daily active user ratio (or monthly active user ratio)
The number of customers that bought or subscribed to your product for a certain period of time is important but isn’t the main KPI. The crucial metric for developers is the number of customers that actively use your product.
Using this kind of metrics, you can see how many unique users visit your product per day (DAU), per week (WAU), or per month (MAU).
A unique user visits your site at least once per certain period.
An active user is a person who signed in account and did several actions.
DAU indicator shows the number of active users per day.
Hence MAU is the number of active users per month.
DAU or MAU is used in mobile, website development, online gaming, social networks.
You can identify a unique user with the help of ID and login and find “stickiness” with DAU/MAO ratio.
Perks of using the DAU/MAU ratio
It is a good result if your DAU/MAU ratio accounts for 20%, and it is a great success if its rate is 50%. So, with these metrics, you can track the growth or decline of the product sales when you need to forecast revenue, budget, or develop new features.
The DAU/MAU rating is not the same for different kinds of products, for example, customers can use Uber once a week and open the Airbnb application twice a year. It’s an interesting fact that new products can demonstrate the viral spread.
2.2 Session duration
Session duration is a simple way to track how customers use digital products. To measure session duration you should take the total time in which customers stay on your website, and divide it by a number of users. You can find this value in the Google Analytics report.
Perks of using the session duration
If you see the session duration, you can understand why customers stopped using your product and increase your relations with customers.
While the number of customers is used in the case of applications and software, this KPI works for websites. The traffic KPI shows how many visitors were on your website.
Organic traffic presents customers that found your company via search.
Paid traffic helps to measure visitors that found the website via paid search, social media advertising, or sponsored content.
Perks of analyzing the traffic
You can use this metric to polish your marketing strategy, targeting, or draw conclusions about the efficiency of your promotion.
2.4 Bounce rate
The bounce rate shows the percent of users that visited your website or application only once.
Perks of using the bounce rate
The bounce rate can help you to track customers’ behavior and can be a sign that you should make some changes in your product and reduce this rate.
3. Retention metrics
This type of metric demonstrates the results of your marketing team and customer support work: do they pay off or not. They allow you to focus on your current customers and retain them. There are more chances that the current customers can try to work with new features, participate in your research, or subscribe for a more expensive better plan.
3.1 Customer retention rate (CRR)
CRR metric shows the rate of the customers that use your product after a certain period of time.
You can build on your calculations on a number of downloads or the first sign-in to the application.
A formula of CRR: Customers at the end of the needed period – new customers/customers at the beginning of the calculated period x 100.
Perks of using the CRR
You should decide for what period of time you need to measure the CRR and what customer’s actions you understand as retention. This metric helps you determine your abilities of customers’ retention for a long time. When CRR KPI falls, it can mean new competitors or problems in customer service. Product Benchmarks Report by Mixpanel shows that CRR for most of the companies is about 20%, and this number depends on the kind of business.
3.2 Churn rate
It is reverse for the CRR metric that calculates lost customers. Churn rate can show two types of churn: customer churn and revenue churn. It means a number of customers that unsubscribed from your product and, appropriately, the quantity of revenue that your company lost due to customer churn.
You can calculate the customer churn rate if you divide the number of lost customers for a certain time on the number of customers at the beginning of this period of time.
Perks of using the churn rate
Revenue churn rate is more important for business than customer churn rate, but this metric can show you the level of customers’ satisfaction. So, if you measure it, you can see the success or failure of new features of your product or new subscription plan.
4. Metrics for measuring the product or feature popularity
This kind of metric is needed when a company makes a decision to develop new features or update the UX-design of the product. So, the product manager should analyze customers’ work with the product with the help of metrics described below.
4.1 Number of sessions per user
You can track this KPI with the help of stats of number customers’ sign-in or website visits. As a result, you will see how often customers use the website and how popular your product is.
The number of sessions per user differs from other metrics, traffic, or session duration and shows an average rate for a group of people in a certain period of time.
Perks of using the number of sessions per user
You can compare this KPI from different customers’ groups or visitors to forecast changes in their behavior before churn. Doing this, you can prevent customer churn.
4.2 Number of user actions per session
This metric demonstrates what features of the application a customer used and skipped. So you can measure the popularity of a new feature from the moment when you added it. A number of user actions per session can help you to understand what feature of your product is the most interesting for users.
Perks of using the number of user actions per session
You can use this metric in A/B testing when it is needed to understand customers’ behavior or make decisions about UX and product features.
5. Metrics for measuring customers’ satisfaction
You can make certain conclusions about customers’ perception of your product with the help of traffic, churn, bounce, and retention rates. But the direct way to get information about customer satisfaction is a customer feedback survey.
5.1 Net promotes scope (NPS)
This metric gives you two indicators: a number of loyal customers that can recommend your product (they are called promoters), and customers that don’t like this product (detractors).
Ask your customers to rate your product from 1 to 10:
- They are promoters if they give 9-10 points.
- Neutrals give 7-8 points.
- Those who give from 0 to 6 are detractors.
To measure NPS, you should use this formula: % of promoters – % of detractors.
As the Bain report says, the high NPS level is an indicator of good organic growth (it can be 20-60%), and the results of low NPS level are economic penalties.
Perks of using the NPS
You should consider all information about detractors and involve all related departments (developers, designers, or customer service) to solve their problems with the usage of your product and transform a negative experience into positive ones.
5.2 Customer satisfaction score (CSAT)
CSAT can help you calculate the level of satisfaction or disappointment of certain features or services, it differs from NPS, which relates to the whole product. To determine the level of CSAT, companies, as a rule, use a scale from 1 to 3, from 1 to 5, or from 1 to 10. Next, they sum up all points and divide the result by the number of users who participated in the survey.
Similar to CSAT, you can measure customer effort score (CES). In this situation, you should conduct a survey with the question of how easy customers find needed information about the product.
Perks of using CSAT
You can interview your customers before their subscription renewal when you have time to upgrade or make changes in your product. So, if you are tracking the customers’ satisfaction level, you have great chances that they will renew their subscription. Also, you can use this KPIS as an industry benchmark: large enterprises publish their data and compare the results of different years to enhance their work.
How to choose proper KPIs for your company?
Pendo and Product Collective provided the research about metrics that product managers use. During this research, they find out that, if the company doesn’t focus on its customers and their requirements, customers can stop using this product and turn to the competitors. So, the level of adoption, revenue, and user retention should become an object of your interest.
We prepared 5 tips that will help you in choosing crucial metrics.
- Pay attention to KPIs that show customers’ requirements;
- Create a balance between business, product, and customer goals.
- Search for an average index.
- Analyze information per particular time periods: day, week, or month.
- Work with metrics that focus on the long-term growth of revenue.
We hope that our review of the most popular product management KPIs will help you to organize your company’s work in an efficient and successful way. Feel free to comment below if you have any questions!