Introduction

Before software-as-a-service (SaaS), took the world by storm product leaders used to  consider only one product matrix: product delivery. But the rise of SaaS, changed everything. Some examples of product performance metrics that a business can track to determine if target objectives and goals are being met are: Productivity, profit margin, scope and cost. 

To be successful a modern product leader needs to understand how users engage with, and derive value from a product or in short understand the most crucial product metrics of a business. 

These days, being data-driven is no longer a fringe movement, but has become a sort of rule — the new normal, to get an optimum outcome.

Let us see below what a business leader needs to figure out while scanning through a product’s key performance indicators (KPIs). 

What are product metrics?

Product metrics are data points that businesses use to evaluate the success of a product and find out how customers are engaging with it. These metrics help various stakeholders in a company to understand a product’s value.

Product metrics, though might vary among different products and industries, there are some common sets of logic which are helpful for almost any product. 

Product management KPIs help a business enterprise to understand if the product is meeting its business goals or if the product strategy is working. 

The matrices in product management are often categorised into: engagement metrics and economic metrics. Let us find out Top 10 Product development matrices. 

  • Product Economics: It measures things that have a direct bearing on the profit of an organization. Product leaders pivot their opinion on them to determine either the viability of a business model or the quality of marketing efforts. Here  are a few examples:
  • Conversion rate: It calculates the percentage of users who move from step one to the next step, eg. movement of a product from a new customer to a repeat customer. Mathematically, conversion rate=  (Total users in the final stage) /(Total users in the earlier stage). 
  • New customer acquisition rate: It takes into account the amount of spanking new customers an enterprise acquires. This parameter distinguishes between a new customer and its repeat business. Mathematically, it is calculated by taking into account, the difference in customers in the current period as against the previous period and then dividing it by the total number of customers in the earlier period.

Eg. If a company acquired 600 customers in month1 and  800 in the month2, then customer growth rate in the said period = (800 – 600)/600 = 0.3333 or 33.33%.

  • Customer acquisition cost: This product metric indicates the total cost involved in acquiring a new customer, including all facets of marketing and sales. Mathematically, customer acquisition cost = (Total acquisition expenses) / (Total new customers over a given period). 

Over time, as growth and brand image picks up, the cost of acquisition should go down. 

  • Churn:  This measure is generally used to assess the performance of subscription business, and comprises the percentage of customers, that a business enterprise lost during a certain time period. Mathematically, Churn = (Amount of canceled subscriptions in a given period)/(Customer base). A low value of churn tells that a product is matching up well with the customer needs.
  • Lifetime value of Customers (LVC): It shows how much weight an average customer has for the company. Mathematically, LVC = (Average lifetime spending for each customer)/(Average cost required to give service to a customer). 
  • Product Engagement: It shows how users and customers interact with products and intuitively provides insight into, which parts of a product are working and which aren’t. This helps to note the value, a customer derives from the different features of a product. Following is a catalog of a few engagement metrics.
  • Net promoter score (NPS): It indicates the likelihood of customers recommending a product to others. Mathematically, NPS is calculated by surveying the customers first, on the issue of their likelihood of recommending a product to others on a scale of 1 to 10. 

Now from the data obtained, the percentage of detractors (responses obtained from six or lower) has to be deducted from the percentage of promoters (responses of 9 or 10) for a given time period, to reveal NPS. 

  • Active users: It is a gauge to measure the number of actual users of a product during a given period. The optimal time period for calculating the number of active users, on a daily or weekly basis, is pivoted on: how often a user uses a product. 
  • Session length (SN): It indicates for what duration a user typically uses a product at a time and how much he enjoyed using it. Mathematically, to calculate SN: (i) First find out the session length for all sessions by deducting the starting time from the end. Then, take the average of all SNs, within each period. It is a general convention to eliminate sessions that are shorter than a few seconds, as these can be either due to accidents by the users or bots crawling the Web page or the app.
  • Product Stickiness: It’s the stage where a product exhibits a central and powerful role in the brand experience. Product stickiness is an infinite loop of user value begetting enterprise value. To measure it, we need to take the ratio of daily active users (DAU) to monthly active users (MAU), giving us the “stickiness score,” – – the percentage of the monthly users who engage with the product on a daily basis.
  • Feature usage (FU): This metric gives insight into the percentage of users, using different product features. This measure helps the product leaders to prioritize the important features, while potentially removing or giving the least priority to the features that aren’t used.

Mathematically, FU for a given time period =  (The total number of users who utilised a feature/ the total number of users).

Conclusion

The above points work even more accurately when we choose to take a more granular approach. If we add some more product measurement parameters such as product delivery predictability, marketing qualified leads, net promoter score, a measure of bugs, etc we will be able to get a more chiseled output.

Whether one is an aspiring product manager or a seasoned product executive, the metrics outlined in this guide is sure to advance his career. If any product leader can tick all 10 of these boxes, then he has gathered enough ammunition to help provide a continuous value to the customers of an organization.

Interested to learn all about Product Management from the best minds in the industry? Check out our Product Management Course. This 6-month-long program takes place online through live instructor-led sessions. It is the only program in India that offers the ‘Bring Your Own Product (BYOP)’ feature so that learners can build their product idea into a full-blown product, and go through an entire Product Development lifecycle. Not only this, but this is the only program in India with a curriculum that conforms to the 5i Framework. Post completion, learners receive a joint certification from the Indian Institute of Management, Indore, and Jigsaw Academy.

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