Metrics That Matter To Drive Growth: The 11 Most Important Success Metrics For A Product
By: Salih Sarikaya
Tags: Startup, Metrics, Product Manager, Product Management, Product

12 Important Success Metrics for Products

The business metrics I shall discuss in this section cut across sales, marketing, technical and financial performance indicators. While the majority of these metrics apply to a broad range of products, some are suited to specific products like software as a service (SaaS) products. Let’s delve right in:

1. Active Users

The number of active users — who sign in and perform valuable action — is one of the most important key performance indicators (KPIs) the product manager tracks either daily, weekly or monthly. An increase in the number of active users over given periods indicates growth which is healthy for the product. However, a more revealing KPI is the ratio of daily active users (DAU) and monthly active users (MAU). For digital products that can be used every day, an increase in DAU/MAU of about 20 percent is considered good while as much as 50 percent could signal exponential growth.

2. Customer Conversion Rate

Customer conversion rate is the percentage of prospects who eventually become paying customers within a given period. You will agree that it is customers — who contribute to the revenue — that sustains every business; therefore, when more prospects convert into customers it shows that the business is healthy.

While it can be argued that the customer conversion rate is a sales and marketing metric, it is important to note that product with desirable quality is more likely to get higher conversion. As a product manager, you want to keenly monitor this metric on a weekly or monthly basis. Simply divide the number of new customers added during the period by the number of leads generated.

3. Customer Retention rate (CRR)

After converting a customer, the priority shifts to retaining the customer hence this KPI. Before you calculate the customer retention rate, you first decide actions that you consider as returning for the customer. Then decide a suitable period to measure this retention. To calculate CRR, subtract the new customers from active customers at the end of the period. Divide the result by the number of customers at the start of the period and express as a percentage.

4. Customer Acquisition Cost (CAC)

Another sales-related metric is the customer acquisition cost (CAC) which estimates the cost it takes to add one new customer for the product. To keep your product profitable even at competitive prices, you want to keep your major costs low compared to the revenue. Your CAC is one of these major costs.

The CAC becomes all the more crucial when you intend to scale your product or business. This KPI along with other cost and revenue indicators determines the profitability of the product which in turn impacts its sustainability. To get your CAC, divide the total cost spent on getting new customers by the number of customers gained within the period.

5. Average Revenue per User (ARPU)

Average Revenue per User (ARPU) measures the average amount of money you are getting out of a customer for a product every month or given period. This metric tells a lot about your product and business model. For instance, if your ARPU increases, it means your customers are paying more for your product which means they are getting more value out of your product. This is excluding external factors.

Good customer service and marketing strategies like upselling are known ways of improving your ARPU. Also, products and services with interesting opt-in features or value upgrades are known to gain more revenue from the customer.

6. Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is an important metric for SaaS and other subscription models. It measures the revenue your product gets monthly from customers who sign up for the product. These indicators tell if your products are delivering the expected value to the customers. To calculate the MRR you can obtain the monthly revenue from each customer. However, an easier way will be to multiply the ARPU (discussed earlier) by the total number of users.

In addition to the MRR, the product manager can track the MRR from new customers who subscribed for the service within the month as well as MRR from product add-ons. Further indicators are MRR growth, Churn MRR, and Expansion MRR.

7. Customer Lifetime Value (LTV)

Customer Lifetime refers to the period between when the customer signs up for your product and when they stop using (and paying) for the product or service. It is, therefore, important to track how much value you gained from the customer during this period. LTV, which could be expressed in profit or revenue, is calculated by multiplying the average profit per month from a customer with the average lifetime of a customer in months.

8. Churn Rate

When a customer churns, the customer stops using your product or subscribing to your service monthly. The rate at which this happens informs the product manager of the health of the product. To calculate the churn rate, divide the number of customers lost in a month by total number of customers in the previous month.

Of course, you want to keep your churn rate low especially for SaaS products which rely heavily on monthly subscriptions. This can be done by maintaining quality products and customer service while adding new relevant features and updates.

9. Bounce Rate

The bounce rate is the percentage of website visitors who leave your website after viewing only one page. In product terms, it tracks the number of visitors who land on your product page and leave without doing anything. To calculate the bounce rate, divide the number of one-page visitors by the total number of website visitors for the period and express as a percentage.

Bounce rate is one of many performance indicators gleaned from the product pages/landing pages. Others include dwell time, organic and paid traffic, and qualified visits.

10. Dwell Time/Session Duration

Dwell time metric measures how long a website visitor spends on a single session. It could also mean the average amount of time a user spends in a single session of your product. This metric helps the product manager understand the level of engagement the user gets from the product.

11. Organic vs. Paid Traffic

By tracking the volume and nature of internet traffic to a product, the product manager can understand the growing trend of the product. This is particularly true for internet-based products and services. Increasing paid traffic indicates healthy advert and marketing campaigns. Increasing organic traffic could mean your product is well-positioned in the market or a result of healthy recommendation rates. A better metric for recommendations is the Net Promoter Score.

12. Net Promoter Score (NPS)

Net Promoter Score (NPS) tells the likelihood of a user to recommend the product. This is usually obtained by asking each user how likely is he to recommend the product to someone rated on a scale of 1–10. Customers that respond with 9–10 are very likely to recommend your product and are called promoters. Those that respond 1–6 are likely to discourage potential customers from using your products and are called detractors. To calculate, subtract the percentage of detractors from the percentage promoters to get the NPS which is a whole number.

Other similar indicators are the Customer Satisfaction Score (CSAT) and the Customer Experience Score (CES) which focus on the customers’ satisfaction with your product or a specific feature. CSAT is calculated by getting customer ratings on a scale of 1–10 for instance, then sum up the scores and divide by the number of respondents.

Photo Credit: Unsplash, by @ adeolueletu

Defining the Right Success Metrics for Your Product

If you’re like me (and most goal-driven PMs), you’re probably thinking of the next targets to set and tasks to go with them. But that’s not all. You also want to validate these goals; explain why your team should be focused on meeting them. The key indicators from the metrics you are tracking will greatly help in this decision making.

However, the key performance indicators that you are tracking can only be good pointers of success when they are suited to your product and business goals. It is, therefore, your job as a PM to choose the metrics or a mix of KPIs to prioritize for your product. Here are a few basic questions to guide you when choosing the right metric for your business:

i. Which indicators align best with my business goals or product objectives?

ii. Which metric best describes the usage of my product?

iii. Does the metric reflect the characteristics of the users of my products?

iv. Which period is best to track the metrics: daily, weekly or monthly?

v. How does the metric predict the long-term performance of my product?

vii. Is the metric actionable?

viii. Does the metric focus on average or on the total?

Next: Metrics vs KPIs