Data-Driven Product Management: Choosing the Right Metrics for Your Product
If you’re a product manager, you know how important data-driven product management is — it’s now at the foundation of most successful products.
But what if you’re launching new products or features? Metrics at the early stages can be challenging because there’s rarely a history of data. In some cases, if the product has recently launched, there might be a flood of data, but no structure or focus on the right metrics to use.
What are the right metrics that product teams can use to measure the potential success or weakness of a new product? Here are several tips for incorporating metrics into your roadmap planning.
Define the Metrics Early
By defining the right metrics early, you can get better insight to guide your product decisions and your product roadmap. It’s a good practice to begin discussing success metrics as early as you can during the development of the product — and well before it reaches customers.
With so many new analytics tools available for product managers, it’s become common to have a firehose of data and metrics soon after your product launches. The real challenge is in determining the few metrics to focus on — the sooner the better.
The Scientific Mindset
In order to begin setting the right metrics and product goals early, you’ll need to think like a scientist. Scientists first describe their hypothesis, define a test, and measure. Product managers can do the same by setting goals and then setting metrics for those goals. Although simple, this scientific mindset is one of the best ways to guide new products to success.
For example, you might decide that a conversion metric is important to measure — such as the percentage of trial customers who convert to paying customers. Even without solid customer data, you can create a hypothesis about what you think you will see and a target of what is ideal. This process itself is incredibly valuable because you’ll have great conversations with the team about the business model and will be able to spot challenges early on once the customer data begins arriving.
Are You Measuring the Right Things?
Ultimately, the metrics you choose depend on the stage of your product, your industry, the type of product, and the size of your company.
But the most important consideration is to focus on a limited number of metrics that really matter. These are metrics that tie back to the organization’s top-line goals and business results.
Avoid “vanity metrics,” those metrics that feel good but in the end are rarely actionable. For example, vanity metrics might include website page views or the number of Facebook likes. In the end, these metrics rarely tie directly back to business results or customer success.
Better choices would be metrics such as active users, acquisition cost, and average revenue. These are metrics that make a difference to the business.
Sample Metrics for Your Product
If you don’t already have success metrics, how do you set about finding the right ones?
Begin by researching metrics discussed in your industry. Whether you are in SaaS, retail, media, or another industry, there are experts who are discussing those metrics online.
Look at information about competitive products — companies that are publicly traded will often discuss those metrics during earnings calls.
Generally speaking, business goals such as revenue, margin, acquisition cost and retention are good places to start. Customer-specific metrics such as product usage and retention are good starting points as well.
Here are a few examples of metrics that will help you measure success from a customer and business standpoint. Of course, the metrics you select will depend on your business and product. Choose only a few to start, so you can focus.
Customer Success and Product Engagement Metrics
- Product usage/adoption (sign-in frequency, sharing, etc.)
- Percent of users who take a specific action that matters
- Feature usage (usage vs. other features)
- Which customer type is using certain features
- Retention or churn rate
- Quality (e.g. average bugs, net promoter score)
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Monthly Recurring Revenue (MRR)
- Annual Recurring Revenue (ARR)
- Average Revenue per User (ARU)
- Conversion (e.g. site visit to lead conversion)
You’ll pick a handful of these metrics to set the baseline — these are a great place to start, but ultimately you’ll refine the metrics for your business. Work with your team to get consensus on the metrics that matter.
These are actionable metrics that tie back to the strategic goals and initiatives you put on your product roadmap. Revise the goals and metrics periodically — as the product matures, the metrics will need to change and likely grow with it.
I’m a founder of ProductPlan, product roadmap software. This post is an excerpt from my company’s free book, Product Roadmaps: Your Guide to Planning and Selling Your Strategy. Download the full guide for more tips on navigating your way from concept to roadmap to successful product.