The Product Metrics Guide
What are Metrics anyway?
Throughout our lives, our performance and skill level have been represented through marks or grades. Be it marks from competitive exams or marks from individual subjects in college, these numbers have always been a reference point to monitor our progress and growth. Similarly, Product Managers employ numbers to measure a product’s performance and growth. These numbers, more formally known as metrics or KPIs, provide you with critical information on how a product or feature is fairing in the market and helps you identify what is working or not working for your product.
Why are they important?
Let’s take a simple example. Say you’re the PM who introduced Instagram stories to improve user engagement. To measure its success, one might think that user feedback would be the best way forward. But how often do we provide feedback ourselves? That’s when metrics can come in handy. As an indicator of its success, you can track insights such as the increase in app usage post feature introduction, the number of stories per user per day or week, the ratio of number of clicks to the number of stories etc. Metrics also enable PMs to make data-driven decisions to achieve goals such as an increase in revenue, user base, retention etc. Hence, they form an integral part of product strategy.
Key Categories of Metrics
While metrics can vary based on your product, the following are few of the traditional metrics which you can leverage based on your business goal:
Note: The following is not an exhaustive list.
- User Engagement
An app has no value without its user base and their activities. The metrics listed in the image below are commonly used to gauge the level of user activity.
2. Revenue
Revenue is one of the most important metrics for a company and is directly dependent on other metrics. It tracks how much revenue our application/product can make and how well we leverage the other mentioned metrics to convert ‘free’ customers into ‘paying’ customers as well as retain your already paying customers.
Some of the key ways to track revenue are:
- Monthly recurring revenue
- Annual recurring revenue
- Customer lifetime value
- Cost per acquisition
- Average Revenue Per Unit (ARPU)
3. Activation and Conversion
Activation refers to a user’s first value moment(‘Aha’ moment). The meaning of activation can vary from product to product. For example, a user who signs up for a free trial or someone who watches ‘X’ number of videos within 7 days could be categorized as active. Also, while activation can refer to the successful download of an app, conversion which is a more important metric, can mean an action such as a successful purchase. Activation Rate and Conversion Rate are the most commonly used metrics to measure the same.
4. User Retention
- Customer Retention Rate: Retention, a sign of loyalty, refers to the number of users who continued to use your product over a period of time.
Retention Rate=(Customers at the end of the calculated period — New customers) X 100/ Customers at the start of the calculated period
- Churn Rate refers to the percentage of users who stopped using your app during a given period. High churn rates suppress growth and increase your customer acquisition budget. Churn can be attributed to issues such as lack of features, poor support, strong competition etc.
Churn Rate = Number of Customers Lost/Total Number of Customers
5. Customer Satisfaction
- Net Promoter Score: High NPS can be a good indicator of organic growth. To calculate NPS, users are asked to rank a product from 0 to 10. ‘Detractors’ usually score from 0 to 6 points. Users who give 7–8 points are ‘Neutrals’ and those who score the product between 9 and 10 are ‘Promoters’. Then the NPS is calculated as follows:
Net Promoter Score = %Promoters — %Detractors
- Customer Satisfaction Score (CSAT)
Popular frameworks
There are also some popular frameworks which incorporate these metrics in a structured manner. They can act as a checklist to assess your product or feature’s performance.
- HEART Framework:
Proposed by Google, this framework is widely used to measure user experience. The metrics of this framework can be used at a product level as well as feature level:
Happiness: How users feel about the product? This can be gauged using NPS, Customer satisfaction score etc.
Engagement: How are people using the product? It can be measured using number of actions such as shares, uploads etc.
Adoption: New users. This can be measured using metrics such as the number of new subscribers, upgrades etc.
Retention: Existing users. This can be measured using number of active users, renewal rate, repeat purchases etc.
Task Success: Complete actions. The number of users who accomplish a task can be used for the same.
2. AARRR Framework:
This model is also known as the Start-up metrics for pirates and was developed by Dave McClure. The metrics capture customer behavior at various stages of their interaction with the product and help PMs make more data-driven decisions to optimize the product and make it more valuable to customers. The image below covers the metrics in the framework:
Tools to track Metrics
Some of the most widely used metric tracking tools are:
Google Analytics: Google Analytics is one of the most sought after tools as it follows a freemium model. While start-ups and smaller firms can use this tool with limited features for free, bigger firms will have to opt for the paid version. The tool is easy to use and focuses on capturing metrics for websites and comes in handy for e-commerce like websites.
CrazyEgg: CrazyEgg monitors users’ interaction with your website/app by tracking mouse clicks. The tool offers 2 key features — 1) Heatmap View: Gives a visual picture of regions on a website that is most used by users 2) Scrollmap View: Shows where users are spending most of their time on a page. These features enable website owners to optimize data that attracts customer attention.
Mixpanel: Mixpanel is available for both web and mobile applications. Some of its unique selling features are analysis and tracking of engagement funnel, user profiles, cohorts and custom dashboards. This affordable tool gives you a clear indication of user conversion and drop rates at every stage of the funnel and helps you determine what works for you and what doesn’t!
Heap: Heap is another web and application analytics tool that captures and measures every user interaction on your website or application It helps a PM to understand how a user is using their product and identify features users love and features that don’t work well with the users. Similar to mixpanel, heap gives you the option to customize your customer funnels and capture drop-off rates at each stage of the funnel, giving PM’s a better understanding of where there are losing and what can be done to reverse this trend.
We hope this article gave you a better understanding of product metrics. Happy learning!
Chaya N Aishwarya, Keerthika K
IIM Calcutta, 2019–21
Resources
https://www.hotjar.com/net-promoter-score/how-to-calculate/
https://uxcam.com/blog/product-analytics-tools/
https://www.productplan.com/tie-metrics-product-strategy/
https://mixpanel.com/topics/product-management-metrics-and-analytics/
