15 Key Product Management Metrics and KPIs

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Let’s make a bold assumption: Every software product you regularly use is data-driven. Example? Uber, Spotify, Amazon, Facebook, Netflix, the AltexSoft website you’re viewing right now — just to name a few. To deliver the most value, encourage your return and loyalty, executives of companies like to start their weeks by looking at metrics — pieces of quantifiable data that illustrate the changes in revenue and customer behavior.

Of course, knowing these changes exist won’t solve anything. Netflix’s ex VP/CPO Gibson Biddle, explained that they used data to hypothesize and then A/B test assumptions to find out what worked. That’s exactly how Netflix decided to replace their 5-star rating system with simple like and dislike buttons, introduce the “percentage match” of the movies, and majorly simplified the UI.

In this article, we will introduce you to metrics and KPIs to track your product success. While they will give you the knowledge, the real power lies in how you learn from them, how you interpret, hypothesize, and spark change.

KPIs and metrics for product management

Today, the biggest issue with metrics is not how to measure them — Google Analytics alone is a valuable tool for calculating and visualizing your success. It’s choosing a few key metrics to keep an eye on, spend less time tracking, and more time acting upon the found data.

Depending on what your objective is — attracting a new customer segment, improving popularity with users, getting ideas for new features — you need to choose the right metrics. KPIs are among key points in building a product roadmap — they allow product managers to evaluate engagement, feature usage, user experience, and, of course, commercial success. First of all, pay attention to KPIs that contribute to your goals. Let’s start with the most significant area and learn how to measure revenue.

Metrics to forecast business success of a product

Monthly recurring revenue (MRR)

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MRR calculation. Source: ProfitWell

Average revenue per user (ARPU) allows you to count the revenue generated per user monthly or annually. You need these metrics to define the future service revenue, in case you’re going to change the pricing plan or roll out a promotion.

There are two types of ARPU: per new account and per existing account. ARPU per new account refers to metrics based on new accounts appearing after the subscription plan or product price was changed. ARPU per existing account involves the data from accounts established before the price change. This is the ARPU formula:

Monthly recurring revenue / total number of accounts = ARPU

Use ARPU to compare yourself to competitors, consider different acquisition channels, or segment which tier of customers brings more value.

How to use MRR and ARPU. It’s an effective KPI to use to monitor a company’s current health and it’s especially valuable in SaaS businesses working on a subscription basis. Since you don’t need to worry about one-off sales after acquiring a recurring customer, MRR is easily calculated and predictable.

Customer Lifetime Value (CLTV or LTV)

Average Revenue Per User (ARPU) * Average customer lifetime = CLTV

How to use CLTV. Track this metric to test and select customer acquisition channels, purchasing cycles, and retention strategies.

Customer Acquisition Cost (CAC)

Sales & marketing spendings for a period of time / total # of customers generated for a period of time = CAC

How to use CAC. Use CLTV and CAC together to identify whether customers bring you less profit than what you spend on them, and whether it’s time to reconsider pricing and product marketing strategy to attract more users.

Metrics to analyze and grow user engagement

Daily Active User/Monthly Active User ratio

Daily Active User (DAU) — the number of active users per day. An “active user” is one who signed in an account and performed some valuable activities.

Monthly Active User (MAU) — the number of active users who complete valuable activities per month.

This KPI is applied to mobile apps, online games, websites, and social networks. A unique user is defined by ID and login. In identifying the “stickiness” of a product, apply DAU/MAU ratio.

DAU/MAU = # of Daily active users / # of Monthly active users

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An example of DAU/MAU ratio. Source: Geckoboard

How to use DAU/MAU ratio. DAU/MAU of 20 percent is considered a good sign, while 50+ percent indicates extreme success. Growing DAU/MAU percentage allows for tracking growth or decline of a product. This ratio is used in forecasting, budgeting, or making a decision to develop new features. However, not every product must be used daily to be considered successful. You can use Uber once a week on a Friday night out or log into Airbnb twice a year. So, high-recency products are more prone to going viral.

Session duration

How to use the session duration metric. If you calculate the session duration of a group of bounced or churned users, you may find a clue on how to improve user interaction and understand what made them stop using a product.

Traffic (paid/organic)

How to use traffic metric. Paid traffic allows you to find out whether you should continue the promotion and how correct your targeting is. Traffic metrics also allows the product manager to understand which type of marketing is more effective.

Bounce rate

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Bounce rate in Google Analytics. Source: Neil Patel

How to use bounce rate. Bounce rate allows you to track the user behavior and understand how to optimize your product to reduce this number and increase user attention. The next section focuses on more KPIs for attracting users.

Metrics to keep users interested

Retention rate

Retention rate = Customers at the end of the calculated period — New customers / Customers at the start of the calculated period x 100

How to use retention rate: Based on this KPI, you can understand if and for how long you’ll be able to retain new customers when your customer retention rate is growing. In case it dropped, you can be on the lookout for a new competitor or a problem in customer service. According to the Product Benchmarks Report by Mixpanel, the average CRR for most software products is below 20 percent over 8 weeks, depending on the industry.

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People are as likely to abandon SaaS apps as they are to bail on media & entertainment ones after a week. Source: Product Benchmarks Report by Mixpanel

You decide what type of incoming data to use for CRR calculations: what action is considered returning and over what time period you should measure retention.

Churn rate

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Average churn rate for subscription businesses. Source: Recurly Research

While retention rate measures the percentage of users who stayed, the churn rate measures those you’ve lost. There are two types of churn rate: customer churn (number of users who canceled paid subscriptions) and revenue churn (amount of revenue lost due to customer churn). To measure customer churn rate, take the number of customers lost during a certain time period and divide it by the number of customers at the beginning of this time period.

How to use churn rate. In terms of business success, it’s more effective to pay attention to revenue churn than to customer churn. However, customer churn rate can tell you a lot about customer satisfaction. If you measure churn rate after introducing a new subscription plan or applying a new feature, you can understand whether they were justified or not.

There also are KPIs that allows you to measure the popularity of new and old features and we will discuss them now.

Metrics to measure product/feature popularity

Number of sessions per user

How to use number of sessions per user. Compare this data within different groups of users or visitors (retained and churned) to forecast user behavior changes before churn and prevent it.

Number of user actions per session

How to use number of user actions. Use this data in A/B testing to make decisions about features, UX elements, and to understand customer behavior.

The last metric to consider is the level of customer satisfaction and the following section is devoted to key indicators that allow you to track it.

Metrics to evaluate user satisfaction

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An example of NPS. Source: Datapine

Churn and bounce rates, traffic, and retention rate tell about customer perception of your service or product indirectly. The primary way to learn if the customers are happy is direct customer feedback. Net promoter score, customer satisfaction score, and customer effort are metrics that can be obtained via surveys.

Net Promoter Score (NPS)

Bain and Company who initially introduced the metric identified that high NPS leads to 20–60 percent of organic growth. Same goes for negative NPS — a high number of detractors results in economic penalties.

How to use NPS. NPS awareness throughout the organization motivates employees to deliver more value, react to issues faster, and get to the root of detractors’ problems. Besides, any information learned about detractors should be shared among all departments in a common effort to improve the overall experience of your customers.

Customer Satisfaction Score (CSAT)

How to use the CSAT. Ask for user feedback at several points through the customer journey and do it before another subscription renewal so you have time to introduce improvements. Also, use this metric as an industry benchmark — the American Customer Satisfaction Index logs data from the biggest companies and compares stats with past results.

Final word: How to choose software KPI metrics?

  • Choosing your main KPIs, focus on those that reflect user needs.
  • Align user, product, and business goals
  • Focus on the average index rather than on total
  • Focus on particular time periods (week, month, day)
  • Accentuate KPIs that impact long-term growth in revenue

Keep in mind that a product is not just about the software itself, it is about the value and customer satisfaction — so the most important metrics should be concerned with the user.

Originally published at AltexSoft tech blog “15 Key Product Management Metrics and KPIs

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Being a Technology & Solution Consulting company, AltexSoft co-builds technology products to help companies accelerate growth.

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