How to Measure Product Management Metrics
Product management metrics tell you if your product is successful—and, if not, what you need to change to make it successful.
You may be thinking, “That’s easy! If it’s profitable, it’s a winner.”
But revenue alone won’t give you the information you need to create a product that delivers long-term value to both your business and customers.
To accurately measure product success, you need to look at other product management metrics like customer lifetime value, churn, customer satisfaction scores, and more.
Let’s look at the product management metrics that can help make your product more successful.
What are product management metrics?
Product management metrics, or key performance indicators (KPIs), are the numbers that show how well a product is doing. Careful analysis of these metrics can reveal obstacles to success.
Numbers about revenue trends, customer acquisition, or user engagement can give you a wealth of information about your users and the market, enabling you to make smarter business decisions.
Metrics give you an aggregated view of how customers interact with the product. Product managers must carefully choose the right metrics. The results will determine everything from which updates to make to what marketing and promotional strategies to use.
How do you choose your product metrics?
To choose the right product metrics, think about your goals.
Most businesses want to grow and acquire more users. (It’s tempting to say “all businesses,” but some aim to get users to stop using their app. They want to continually find new users, but they aren’t necessarily trying to make their total number of users grow.)
When growth is your goal, you need to know how effective your promotion channels are, where people are coming from, and how much it costs to attract them. You also want to know how your existing users engage with the product.
And yes, any product needs to make more money than it costs. While revenue shouldn’t be your only metric, it will be the number your stakeholders look at first. Many apps have failed because they couldn’t generate enough revenue.
So finding new customers, keeping them engaged, and earning those dollars are three fundamental goals with metrics attached to them.
User Acquisition Metrics
User acquisition metrics tell you how effective you are at attracting new customers. An essential acquisition metric is traffic, or for apps, the number of users.
Traffic can tell you if your marketing strategy is working effectively. If you are seeing high traffic and low conversions, it usually means your users aren’t finding what they need. Either you haven’t targeted the right audience, or you need to improve the user experience, or both.
On the other hand, high traffic tells you that your content or UX is helpful, engaging, and targeted correctly.
Another user acquisition metric is customer lifetime value (LTV), the definitive gauge of customer experience. You calculate the LTV by multiplying the average value of a sale by the number of all transactions and the average customer lifetime. The result tells you how much you should invest in customer retention and acquisition.
For example, let’s say you have an online store that sells hardware. You spend $100 on a social media advertising campaign and get 200 new buyers, costing you $0.50 per customer. Your average customer makes ten $20 purchases a year and sticks around for at least two years. If your profit margin on each purchase is 10%, you make roughly $40 in profit from each customer over their lifetime. That is your LTV.
In that example, your customers like your product enough to keep using it. But if those 200 people only make one purchase and never return, your LTV is about $2. And that strongly indicates something needs more work.
If your LTV is low, you may need to improve customer experience and satisfaction. Better marketing, improved UX, and attractive discounts all help retain the customers you attract so they keep bringing value.
Engagement Metrics
User engagement tells you how people spend their time with your software product. You’re more likely to retain highly engaged users, and they’re more likely to be loyal to your brand.
Mobile apps, online games, and social networks often measure user engagement by the number of active users. Active users perform the actions on your website and app that you’ve defined as “valuable.” For example, they’ve added a product to their favorites list, left a review, made a comment, and so on.
The daily to monthly active users ratio shows your product’s stickiness. A good ratio is 20%. For comparison, a viral app like TikTok gets 50%.
Churn is the customer attrition rate, or how fast you lose users. This metric is closely associated with customer satisfaction and engagement.
You’d think if a customer stops using your app, they must not be happy with it. But that’s not always the case. It could be that a cheaper competitor lured them away.
As previously mentioned, not all churn is bad. For example, if you create an app to help people find and buy a house, the number of people who stop using your app is a success metric. They found a home, so they no longer need your app. That’s good churn.
To know why customers churn or why they stay, you have to ask them questions like, “On a scale from one to 10, how likely are you to recommend this product to your friends?” Their answers give you another engagement metric called the Net Promoter Score.
The answers help product managers divide responders into three user groups: detractors, neutrals, and promoters. You want to have more promoters than detractors. If you can get double the number of promoters than detractors, congrats! That’s a huge success.
However, your Net Promoter Score won’t tell you why a detractor won’t recommend your product. To learn that, you need to figure out your customer satisfaction score. To get that score, you have to ask multiple questions that dive into the details of their user experience. What was their satisfaction with using the whole product? What specific features did they like or not like?
If you’ve answered customer satisfaction surveys, you’ve seen these questions. They ask things like, “Thinking only about your most recent purchase, how satisfied were you with the checkout process?”
The timing of your survey can help you measure different aspects of your product. If you deliver the survey right after they download your app, you can get them to rank ease of installation and onboarding, for example. Survey them right before subscription renewal to ask about improvements and make sure the interface is easy to use.
Financial Metrics
As we said at the beginning, revenue alone won’t give you all the information you need to measure product success—but it’s still an important metric.
Even if your users are happy, the product is only considered successful if it can sustain itself. Software products must forecast how much long-term revenue each user will bring in. Financial metrics are critical if your product operates on a subscription model.
A critical metric is your monthly recurring revenue (MRR). MRR looks at different groups of customers, such as users that joined this month, downgraded users, and users who upgraded to another payment model. And, of course, the users who churned.
Dividing MRR by the total number of users, you can calculate an average revenue per user (ARPU). ARPU helps you determine the subscription tiers that deliver the most revenue, which can help you optimize your pricing.
Product Management Metrics Keep You Focused
Your product management metrics should help you focus on your product vision by reflecting your business model, customer relationships, and business goals.
If your product evolves differently than expected, you may need to change your metrics. That’s okay! Your product management metrics are a set of tools. Use the tools you need to measure the data that will help you be successful.
Product management metrics help you make decisions based on data, not “best guesses.” And those informed decisions will result in a better product, greater value, and business success.
