Product Analytics 101 — Session #3 Understanding Measurement
This week, the following are the key takeaways from the session “Understanding Measurement”.
- How to establish North Star Metric for your product?
- Define Core Metrics
- Establish baselines and target ranges for each of your metrics.
So, let’s get started!
Understanding North Star Metric
In order to establish a North Star Metric, we might have to take a step back and understand the user journey first.
What is a user journey?
A user journey is about the story or a path taken by the user in your product to reach a particular goal. There can be N number of users in your application, but what kind of path each user takes to complete a particular goal is what matters.
Tracking the user journey becomes a task of paramount importance for the following reasons,
- It helps us to measure the user behaviour in order to understand the intent of the user.
- As each user take different journeys, getting to study their path and removing the obstacles can lead to success.
- Understanding the user motivation to achieve the goal can help us to strategize the business accordingly.
With all said and done above, how do I actually measure User Behaviour (Measures what actions a user took in your products) and User intent (Using data to understand why users took certain actions)?
That’s where we might need the help of Analytics and the concept of North Star Metric comes into the picture!
North Star Metric:
North Star Metric is one metric that indicates how well your product is solving the customer’s problems. Defining such metrics is entirely based on the type of your business.
For instance, if we take Spotify their NSM can be Total Listening Time, for Amazon it could be # of transactions, for Uber it could be # of rides bought etc.
Any NSM if you take, should focus on the metric that shows the user behaviour and the intent instead of measuring the revenue. Also, note that a North Start Metric value is not a single metric, it should be rather considered as the outcome from a group of metrics.
Let’s deep dive into a classic example of how Spotify could have possiblydefined its North Star.
Here the Output Metric, “Time Spent listening to music” is the North Star Metric for the product. In order to arrive at the same, metrics,
- Bring Users back more often — Customer Retention
- Increase time spent per session — Customer Engagement plays a major role.
To achieve greater customer retention, the product focuses on New Artist Notifications/ Recommendation features. And to make them spend more time, the product has the feature to keep adding new songs and enable users to discover and create playlists out of it.
So, from the above example, we can infer that the NSM actually boils down to the actual value the user gets from your product.
Okay, now we know one has to arrive at a North Star Metric. But, how do I actually end up defining and measuring it?
That’s where the concept of Data Scope plays its part.
Data Scope is a process where we define how a metric is defined and captured at various stages, for a given user. It focuses on tracking the measurements on an event basis rather than just the user.
This can be achieved by drilling down the metrics into 3 buckets,
The above method holds true for any kind of product or business you are in, be it SaaS subscription-based product or a Non-SaaS solution like an e-commerce website. The way you define these metrics depends on the kind of business you are in/the product you focus on.
Core Metrics
In the above section, we looked at how we are going to track a particular user intent and get the data out of it.
Using Core metrics, one should be able to define the product based on quality rather than making decisions based on quantity.
Now, let’s see what we are going to calculate with those data.
Acquisition Expenses → is the money spent on marketing, ads, sales expenses or any activity that requires a customer to onboard into the product.
Annual Recurring Revenue -> Revenue that comes from the subscription basis.
Average Cost of Service -> Cost incurred by the company to provide this service to the user
ARPU -> Revenue brought by a single user
Life Time -> Life span of the customer using your product
The Ratio value depends on how you have defined the metrics for your business/ product.
With the given basic metrics calculated with the data arrived, one can get a deeper understanding of the user behaviour and take strategized decisions accordingly.
Based on your business, you can define particular metrics as Leading or Lagging.
Leading and Lagging Metrics:
Leading Metrics: Indicates potential change before the impact has a chance to occur.
Example: customer satisfaction, sessions on website, the inbound volume of calls, trail sign ups
Lagging Metrics: It shows the impact of change after the impact has occurred.
Example: Revenue, new net sales, churn, monthly active users
However, all these metrics depends on business context and its impact.
For instance, Customer satisfaction can be both a leading and lagging metrics to study more about the customer churn in your business.
If customer satisfaction drops, it is indicative of both the number of customers who are going to churn (Leading ) / already churned (Lagging)
Any business should reflect the basics of the above-mentioned core metrics, to measure the different aspects of your business. The targets and thresholds defined depend on what you set based on your type of business and decisions. It applies to both B2C and B2B businesses and be aligned with your business model.
With this, session 3 comes to an end. You can refer to the details of the previous session over here!
C u until then!
