To Build a Successful Business, Measure the Right Business Metrics

You can’t improve what you can’t measure.

A product manager or business manager needs to identify common patterns in discovery, usage and growth. This is to determine where users are having trouble learning about their business and using their tools so as to focus efforts on moving them down the product adoption funnel.

Every successful product you use has a team analysing how users are discovering and utilizing their products. Be it at Uber, OYO Hotels, Spotify or AirbnbEng, these teams are trying to discern how users can get the most out of their products in the least amount of time. There’s a clear business reason for this, as numerous studies like the one from PwC state that consumers are willing to pay more for products they love using.

Data is the opium of good product teams. So how does someone determine the best metrics to analyze? I’ll share some of the most critical ones that have helped my team build solid platforms in the past.

Photo by Isaac Smith on Unsplash

The product adoption funnel

Before doing anything, understand your product adoption funnel. This is a way of breaking down the customer journey all the way from the “awareness” stage (when they first learn about your business) to the “purchase” stage (when they’re ready to buy your product or service). Following the purchase stage is the experience funnel, where a customer starts to use the product. If they have an enjoyable experience, eventually these customers becoming advocates and start recommending your tools to other users. This is the ultimate goal for any business — having their tools spread through word of mouth.

This funnel is a hierarchy of effects model, which means consumers must move through each stage of the model to complete the desired action. In theory, as they progress through each stage, consumers who learn about your brand will develop certain feelings or emotions about your product or service, which is what ultimately compels them to act.

Different teams could be accountable for different sections of the funnel. I’ve visualized this below. Of course, I’m sure there’s some companies out there who may have teams and funnels other than the one I’m showing, so let me know if this doesn’t fit your world.

Note 1: Realistically, the actual adoption process isn’t a linear funnel as shown. McKinsey and Company thinks it’s actually more circular than linear. That said, thinking of it as a funnel allows us to find the right balance between measuring the user journey and optimizing their journey.

Note 2: Be thoughtful about the time frame for measurement and reporting, as choosing a wrong time frame may confuse and distract your team and the broader stakeholders. Depending on your business model, you may want to report on these metrics in a timely fashion. For example, if you work on a social media app, many of these metrics need to be reported on a daily fashion, versus say reporting them on a weekly or monthly fashion when managing a B2B CRM platform.

The awareness and interest stage

This is the stage where you want to boost your brand awareness and attract your target audience’s attention. Potential customers are drawn through marketing campaigns optimized across the right distribution channels. Trust and thought leadership is established with events, advertising, trade shows, content (blog posts, infographics, etc.), webinars, direct mail, viral campaigns, social media, search, media mentions, and more.

Example metrics to measure awareness

• [Digital marketing] Impressions: The total number of people who typed in something on, say, Google, and saw a result for a page on your site
• [Digital marketing] Traffic (paid/organic): This KPI mostly applies to web based applications. It shows the general number of people who found and visited the website. While organic traffic is related to the number of visitors who found a webpage via search, paid traffic counts those who visited it from paid sources, for example, paid search, social media ads, or sponsored content
• [Social media marketing] Reach: The number of people who see your content on various social channels like Twitter, Reddit and Stack Overflow.

Example metrics to measure interest

• [Digital marketing] Conversion: The number of users signing up for your product over a given time frame
• [Digital marketing] Email open and engagement rate: The number of people opening and clicking links in your email campaign

The evaluation stage

This is when the prospective customer evaluates the product and explores if it actually meets their needs and requirements. This is the stage where the core product team, including the engineers and UX leads, can really WOW the user and try to show positive impact in the least amount of time possible. I would recommend instrumenting existing product analytics tools like Google Analytics, Pendo or Mixpanel vs building your own tool (read my article on determining when to buy a tool vs when to build a tool).

For example, after learning of a task management called Todoist, I used it everyday for free. After utilizing it for a few weeks and seeing it greatly improve my productivity, I decided to purchase a subscription for premium features like mobile reminders. This was last year and I haven’t looked back since.

The best way to determine key metrics to track is to identify the happy path users need to take to get the most value when using your product. This can be determined by qualitative research backed by a deep understanding of your end users. The data collected over time will inform you if you need to rethink this happy path.

For example, say after signing up for a freemium music streaming application, users can:

• Search for songs
• Play some of the songs
• Add some of the songs to a playlist
• Favorite some of the songs
• Try to download some of the songs [let’s say this is a paid feature, and where we want free users to eventually land]
• Purchase a subscription

Once you have this defined, start to track how many users actually perform these actions on a fixed time interval, and analyze the relative % of users going through these actions after signing up. This could look something like the image below.

By doing this exercise consistently, like say week over week, you’ll not only get a sense of how users are going through your platform and trying to accomplish various tasks, but also help you identify key patterns to focus your product efforts on. This can also help create a consistent form of measuring impact across the various stages of adoption as you deliver new enhancements and functionality.

Other example metrics to measure evaluation

• [Product] Active daily/weekly/monthly users: This lets you know how stickly your product is, measured in how many users return to engage with your tool in a given time frame. If you want to understand adoption and usage of a specific feature within your product, you can look at active users on a feature level as well.
• [Product] Time spent per session or feature: If your core value is based on engagement (like say social media apps or video streaming platforms), then a high amount of time spent in your product is a good thing. If however your core value is speed and efficiency (like say an automation testing platform that saves you time when analysing site performance), then this metric can signify that something is not going according to plan.
• [Sales] Opportunities created: This is a standard metric when your business has a sales team involved. A sales opportunity is a contact or an account which has been qualified. This prospective user or company has entered into your sales cycle and is committed to working with you. Reporting on this can give your teams a sense of how many prospects are finding some value from your offering in order for them to want to work with the sales team.

The purchase stage

This is where the money is. After discovery, if the end user has experienced an improvement in the outcome they expected when using your product, they may move towards putting down their credit card. In the B2B world, sales could also coax the prospect to move towards this stage by providing lucrative discounts and bundle packages.

Example metrics to measure revenue

• [Finance/Sales]Monthly/annual recurring revenue: This is the lifeblood of a SaaS company. MRR is all of your recurring revenue normalized in to a monthly or annual amount. It’s the number of customers times the average amount they pay per month or per year. This metric is only a snapshot of the revenue at a specific point in time. It’s hard to define performance and trends by looking at this metric, since it’s influenced by churn, upsell activities, and contraction. Read this article from Baremetrics or this article from Senovo for information on calculating MRR and other key subscription metrics.
• [Finance/Sales]New customer growth rate: This is the rate at which a business acquires new brand names to their customer base. This is a useful because it differentiates between new and repeat business and is a leading indicator of future growth.

The loyalty stage

Right after purchase, you can start to measure how loyal customers are to your brand and product. Loyal customers tend to refer your business more to friends and family, creating secondary growth to your purchase funnel.

Credit: https://dilbert.com/

Example metrics to measure loyalty

• [Product] Active daily/weekly/monthly customers: This the the same metric measured in the evaluation stage, but with the focus on paying customers. This lets you know how stickly your product is, measured in how many customers return to engage with your tool in a given time frame.
• [Finance/Sales] Churn: This is a key metric to measure for subscription business models. Churn is a measure of how many customers choose to cancel their subscription to your product. The calculation of churn rate can be simple to start with. Take the number of customers lost last billing cycle and divide that by the customers that you started with the recent cycle. The resulting percentage is your churn rate. This metric is directly connected to product and customer success metrics, therefore, this value is pertinent for the entire company.

The advocate stage

This would be the final stage in the hierarchy of effects model where a user has not only become a paying customer, but has helped refer your business to your friends and family. This is a common way of growth for many of the more successful B2C products like Facebook, Paytm and Kayak.

Example metrics to measure loyalty

• Net Promoter Score (NPS): The NPS score is a measure of how likely a customer is to refer your product or service. Customers are asked to rate this likelihood on a 10-point scale every few months, with 10 being the most likely to recommend your product.
• Customer referrals and reviews: Products like Uber and Zomato have built-in mechanisms to invite others, so tracking this in a timely manner can give you a sense of how many customers have turned to advocacy. You could also measure reviews and posts on the web from users as a measure of advocacy. This could be discussions on forums like StackOverflow and Quora, reviews left on sites like G2Crowd and Amazon and posts made on Twitter and LinkedIn.

In closing

You can’t measure everything. As Tomer Sharon puts it here -

Measuring everything means measuring nothing.

🛣 So walk a mile in your end user’s shoes by going on a journey with them from discovering your products to adopting and advocating for their benefits. That’ll give you a full understanding of what to measure, track and optimize for.

Other amazing resources to help define your business metrics

• Pendo 2019 benchmark report
• A very exhaustive guide to metrics and their associated formulas from Andy Mura of Userland
• A guide to calculating various forms of MRR from Baremetrics
• Shaun Juncal details the SaaS product pyramid here