Only 5% of new products succeed. Think iPhone. Think Playstation. All successful products are the same: off-the-chart user engagement, retention, and satisfaction. They disrupt the market. They surpass every product success metric.
All unsuccessful products are unsuccessful in their own way. In twenty years of product management, I’ve seen hundreds of mediocre products. Why wasn’t the product meeting its revenue goals? What improvements or features would help? Should we kill the product? All of these questions are impossible to answer without metrics.
Product success metrics provide measurable, objective insight into customer behavior and help product managers to ask questions and find answers. Using product success metrics, you can:
- Make a compelling business case for a product
- Identify product improvements and obtain investment
- Decide whether to kill a product
Product success metrics allow you to measure success and failure in order to build products faster, smarter and better.
How Do Product Success Metrics Work?
“I love data”; “What data do you have?”; “I don’t care about your opinion, what is the data?”; “We make data-driven decisions”. Sound familiar? Your leadership team probably talks like this and coaches you to do the same. Data gives us facts, but data doesn’t make the decisions for you.
When looking at product success metrics, you want to focus on those that are relevant to your product, factoring in its place in the product life cycle. Then, use these metrics to do more research, inform and then support the best decisions for your product development strategy.
It is important to think about why a specific metric makes sense—put aside your biases and consider what you want to convey to stakeholders. You’ll still have to make decisions, persuade your stakeholders, and execute.
Determining Which Metrics Matter When And To Whom
While there is a smorgasbord of product success metrics, not all of them will be right for your product, its place in the life cycle, or your stakeholders. Irrelevant product success metrics can blur the picture and irritate your stakeholders.
Here are the three questions to consider:
- What type of metric best suits my product?
- Where is my product in the life cycle?
- Who are the stakeholders for these metrics?
1. What type of metric best suits my product?
For example, streaming services like Hulu or a social media app like Instagram, for instance, would focus on daily active user (DAU) numbers. On the other hand, an e-commerce website might not expect customers to visit daily, so they concentrate on a metric like bounce rate or traffic.
2. Where is my product in the life cycle?
If you are building a business case for investment, then you will be looking at metrics that forecast revenue over a period of time, such as ARPU.
If you have an already launched product, then you’ll want to sift through metrics that reveal user behavior and engagement. Always compliment these metrics with qualitative input.
Related Read: An Updated Approach To The Product Life Cycle
3. Who are the stakeholders for these metrics?
Ideally, your company would have clearly defined product success metrics against which you could regularly measure your products. In real life, you may be defining these yourself and having to adapt to different stakeholders’ interests and whims.
Leadership, sales, and product management teams are interested in and benefit from different metrics. Thinking about who benefits from each helps you communicate them most effectively.
For example, in building a case for a product feature with the product team, a metric that shows 89% of customers stopped using the product after five minutes because they couldn’t find the upload button can win the argument.
Privilege metrics that reflect actual user behavior. You want reliable data that shows how customers are interacting with your products.
Key Product Success Metrics
Below are product success metrics grouped into three categories. First, metrics that help you forecast revenue and build a business case; second, metrics to track your product once it is launched; and third, metrics to help you analyze customer satisfaction.
Metrics To Forecast A Product’s Revenue
These metrics help you to build the business case for a product.
Monthly Recurring Revenue (MRR)
Monthly recurring revenue is the expected total revenue generated in a month. MRR is especially useful to a SaaS business since their income and expenses often fluctuate from month to month.
To calculate MRR:
Monthly subscription rate x number of subscribers = MRR
If customers are paying yearly, divide their yearly amount by twelve to determine their monthly subscription rate.
Average Revenue Per User (ARPU)
Average revenue shows you how much revenue will be produced either monthly or annually. ARPU is calculated for both new and existing customers.
To calculate ARPU:
Monthly recurring revenue (MRR) / total number of accounts = ARPU
ARPU is a useful metric to use as you consider profitability, price increases, and promotional discounts. It is also a metric used to compare yourself to competitors.
Customer Lifetime Value (CLTV)
This is another metric for evaluating a product’s potential success. CLTV, sometimes abbreviated as LTV, calculates the predictable revenue you can make during someone’s time as a paying customer. This metric offers a more expansive view than ARPU.
To calculate CLTV:
Average revenue per user (ARPU) x average customer lifetime = CLTV
Knowing how much money the typical customer generates helps you determine how much you can spend to acquire new customers while remaining profitable.
Customer Acquisition Cost (CAC)
This product management metric indicates the cost of attracting a new customer. This includes how much you spent on marketing, sales, and advertising, including salaries paid to your marketing and sales teams.
While there are multiple ways to calculate CAC, this is the simplest method:
Sales and marketing costs for a specific period (month, year, etc.) / total number of customers acquired during that same period = CAC
Knowing the cost of obtaining customers informs decisions such as when it’s time to consider a price change or when to implement a new product marketing strategy.
Metrics To Track User Behavior And Engagement
While stakeholders want financial metrics, executives and product managers need to see beyond the financial picture. They need data on how a product or feature is performing. They want metrics that help them analyze and strengthen user engagement. If they don’t use these metrics, those revenue projections are going to ultimately point in a predictable direction: down.
Active User Percentage (DAU, MAU)
While attracting customers is important, the total number of customers isn’t considered a KPI. It is more beneficial for many businesses to know how many customers are actively using their product.
Therefore, metrics like daily (DAU) and monthly (MAU) active users are often more useful to track. Once you have these averages, you can then calculate your DAU/MAU ratio by:
Number of daily active users / monthly active users = DAU/MAU ratio
Tracking this ratio monthly signals whether a product is on the rise or beginning to decline. This KPI is therefore commonly used for entities such as mobile apps, social networking sites, and online gaming. It also helps in forecasting, budgeting, and making decisions in regard to product development.
Not every business focuses on its daily users. Some companies, such as e-commerce websites, prefer a KPI that measures traffic.
Traffic metrics determine how many customers have found your website. This metric should also reveal whether those customers were organic, meaning they found your website through a search, or paid, meaning they visited your site from a paid source.
Traffic metrics help you evaluate your distribution channels. This can help you evaluate which marketing strategies have been most effective, so you can focus your resources on the strategies leading to more revenue.
This metric, like traffic and DAU, can be provided by a product analysis tool and tracks digital product usage in terms of time.
It is calculated by:
Total time spent by users/number of users = average session duration
Keep in mind, this isn’t a perfect metric as it cannot account for time when a customer is logged on but inactive.
Bounce rate is a metric for seeing how many people left your website or app after visiting only one page. This is important because obviously, you want to know if people find your site interesting or useful. Like traffic, a product analysis tool also provides this metric.
While it can be useful to see what percentage of visitors are leaving so quickly, the bounce rate will not answer why. Whether your messaging was off or your site was difficult to navigate, the bounce rate is not going to offer data that helps you determine the cause.
Metrics To Track Customer Retention And Satisfaction
Because success must be measured differently for different digital products, there are other markers of product success to consider.
Churn rate is a product management metric that gives you a glimpse into customer retention. The churn rate is the percentage of customers who have stopped using your product or canceled their subscription during a specified amount of time.
You can calculate churn rate by:
The number of churned customers (those lost) during a specified period / the number of existing customers
This number can give you insight into customer satisfaction as well as future profitability.
Net Promoter Score (NPS)
The net promoter score (NPS) measures the overall satisfaction customers have with your product, service, or feature. This customer success metric is measured by looking at the percentage of customers who are promoting your products versus the percentage detracting from your product.
To calculate NPS:
Percentage of promoters – the percentage of detractors = NPS
To determine whether a customer is a promoter or detractor, you need to create an NPS survey. This survey asks customers to rank your product or feature. If a customer gives you a nine or ten, that customer would be considered a promoter. A customer who ranks you between zero and six is considered a detractor. Those in the seven or eight range are considered passive, or neutral.
This product success metric gives you an idea of how often you’re turning visitors into customers.
To calculate your acquisition rate:
Number of new users / specific period = AR
Client Retention Rate (CRR)
Your client retention rate signals your product’s ability to keep customers engaged over a longer period. Your ability to retain customers gives you feedback on just how well you have established yourself in any given marketplace.
To calculate your client retention rate:
Number of existing customers at end of a period/number of total customers at the start of that period = CRR
Retention rates can have a direct relationship with revenue, especially since retaining a customer is much less expensive than acquiring a new one.
Beyond The Metrics
Knowing which product management metrics to focus on becomes easier when you think about your product, its place in the life cycle, and your stakeholders. Consider your product and certain metrics will become more relevant than others.
All successful products are the same; all unsuccessful ones are unsuccessful in their own way. Using product success metrics, you’ll understand why your product is unsuccessful and how to change it.
If change isn’t possible or worthwhile, then one of the bravest things a product manager does is to kill a product. Product success metrics help you make the case for your product and the necessary changes along the way.
While metrics is an integral tool for the product manager, there’s much more to building a successful product. And with the constant advancements in data and analytics, keeping up with the latest changes and trends is a must. Stay up to date by subscribing to The Product Manager newsletter.