Pro-Tip: Beginners Guide into Product Metrics 2021
What is Product Marketing Management (aka PMM) or Product Metrics and how do you use it? How does one measure in depth the success or failure of their product. What’s all the fuss about ARPUs, CACs, CRs and RRs? This and much more in today’s topic!
Following our Digital Transformation mega-topic, let’s look at the business side, specifically project management and how we can measure various data to achieve success, and BigData in the long run.
Last time we touched on this topic we gave you a general guide to project management as a whole. Now, let’s go a bit deeper with our very own professional Product Owner working on yet undisclosed project. It doesn’t stop him however, to impart some knowledge nuggets onto the rest of us!
Let’s talk Product Management
Metrics are among the most important aspects of successful product management. Even though there is a treasure trove of information on this topic, much like real treasure, it seems exceedingly difficult to find in one place.
Product metrics overview directly 3-4 aspects of doing business simultaneously. And it’s surprising how very few Product Owners (PO) share their methodology.
My name is Alexander Beschier and with 3 years in sales, and another 3 as a full-fledged product owner, I’ve decided I have most (well some) of the basics figured out. But we never stop learning, so perhaps more for my own reference or that of my colleagues, but also for starting Product Owners out there – I’ve compiled a “jumping off point” list of things a PO should be on the lookout for – in this article.
So, what are “Product Metrics”?
We’ll begin with answering what are these metrics and what are they for. First, here’s our definition of product metrics.
Product Metrics are qualitative and quantitative indicators that reflect a specific stage in life of a product.
These indicators are required to make smart, data-driven decisions based solely on numbers, or factual knowledge.
Generally speaking, understanding the concept of metrics isn’t hard, the difficulty lies in the fact that each group of these metrics belong to a separate sector of product management! These sectors are – Marketing, Business, Product, and Interface.
Each sector deserves a methodical analysis, from article to article, course to course, book to book, collecting the overall puzzle with every bit. But our product requires decisive action now!
Let’s start with fundamental breakdown of most general product metrics, and much like our Product Management sectors these are – Marketing Metrics, Business Metrics, Product Metrics, and Interface Metrics.
It’s important to note that these are merely categories, and themselves include many sub-categories. These are a good start of point for anyone reading this to begin their research journey, should this article prove insufficient to satiate their curiosity.
Following Metrics are suitable for B2B and B2C spheres as well as E-commerce, Blogs, social media, and others.
Short-list of Product Metrics – Reference list
Remember, this list is merely a “basics reference list” and is by no means complete or ever encompassing, just the ones I thought were the most important for a newbie.
Marketing Metrics encompass data relating to effectiveness of marketing campaigns and the “face” of your product.
Customer Acquisition Costs (CAC)
This is a mathematical metric, a calculation for how much it costs to transform a prospecting client into a buying client.
Here’s an easy formula:
CAC = All expenses relating to marketing / Number of clients acquired for a period
Of course, that is a simplistic overview, acquisition costs go far deeper than this, here’s a formula for when you have a team, equipment, marketing and additional costs to manage:
CAC = [Advertisement + Employee Salaries + Equipment Costs + Additional Costs] / Number of new clients
Activation Conversion Rate (Activation CR)
This metric indicates how many of your customers have performed a milestone action on your platform or product. Milestones differ from project to project, for social media they include the “first friend request” or “follow”, or a music streaming service will have “first play-list created”.
[Nr. users who complete the set milestone / Total nr. users who signed up] × 100 = Activation rate (%)
Daily/Monthly Active Users (DAU/MAU)
This is your traffic, self-explanatory really. DAU is the number of unique users who engage with your product in one day, and MAU is the number of unique users who engage with your product in a 30-day window.
Primarily used to calculate the engagement with the help of the DAU/MAU ratio that is calculated:
Ratio = DAU / MAU
A good benchmark for a social media platform is roughly 50%; for other platforms it would be around 20%.
For example, a platform with 400 daily users and 1000 monthly users has a DAU/MAU ratio of 40%.
Quite simple yet again, it is the amount of time your dear client spends reading, browsing, researching your product, usually very relevant for blogs, social media, news sites and other.
Very important when calculating other metrics or helping convert them.
Business Metrics are slightly clearer, at first glance anyway, this is where we talk monetization. We’ll be primarily discussing Profits, the majesty of all metrics.
Revenue/Turnover/Income, call it however you like, but essentially here we show how much money the product or platform earned over a set period.
It’s important not to confuse this with profits!
Customer Lifetime Value (CLV)
Customer Lifetime Value indicates the total revenue your product can reasonably expect from a single client.
When used in conjunction with CAC you deduce the overall time to recoup the investments used when acquiring new customers.
CLV = (Customer Value*Average Customer Lifespan)
Customer Value = Average Purchase Value (APV) *Average Number of Purchases
APV = Total Revenue / Number of Orders
Average Revenue Per User/Unit (ARPU)
Here we calculate the revenue generated per customer or unit, commonly used in subscription-based services, such as telecommunications or networking companies.
To calculate ARPU a standard timeframe must be defined, typically a month or a year.
ARPU = Total Revenue (Month or Year) / Total Number of Customers in that duration
Other variants: ARPDAU (Average Revenue Per Daily Active User) or ARPPU (Average Revenue Per Paying User)
Cost Per Order (CPO)
This metric calculates how much does it cost you per one customer purchase. Primarily incurred during advertisement, subscription charges, shipping costs and other.
Finally, here’s what we all want and strive for, all the previous metrics allude to this.
Profit tells us exactly how much our product/platform has earned us. It’s all the money we have left at the end of the day once we subtract all the living expenses of our product for a set period.
This category tells us exactly what happens with our customers and how loyal they are to the product/platform.
Conversion Rates (CR)
The conversion in the sales funnel – how many users reach the final point of the product, i.e. purchase. For instance, for E-Commerce a healthy indicator is 2-4%.
Yet again, this is our traffic, simple. We’ve mentioned this above, and yes metrics can be part of multiple categories.
Retention Rates (RR)
Among the most important things to look out for! This, alongside Churn, we can accurately calculate how loyal our customers are, percentage wise.
Retention Rate = Number of active users that continue their subscription / Total number of active users at the beginning of time period
Sometimes called attrition rates, Churn is a measure of the number of our clients (typically subscription based) leaving us.
For example, an annual Churn rate of 25% means a 4-year average lifespan of a customer.
A varied category with too much to cover, essentially here we measure and calculate how effective various UX/UI approaches affect our customers. These are incredibly useful when you “fine tune” your product.
Once you’ve got a basic grasp of metrics and where you can fish them out. In comes the next crucial step, and that is metric segmentation.
Understand that every Product Owner is his own master when it comes to this for there are no proper templates out there, and if they tell you otherwise, they are lying to you! Here are a few examples on how to segment your metrics:
Quantity: DAU/MAU, Orders, Installs, sign-ups and application launches, Lifetime Value of a Customer (LTV).
As you might have guessed, this segment measures the numbers about your product.
Quality: CR, RR, Churn.
This segment focuses on the quality of your product, the progression here is completely different. But as you know the loyalty of you customer directly correlates to “how good is your product”.
Using some of the metrics we’ve talked about before, lets segment them in a different way.
Growth metrics: DAU/MAU, Orders, • Conversion per one purchase (C1).
Anything that affects our growth by each new customer.
Leading metrics: CR, Churn, Revenue, RR.
All the metrics upon which you could create a logic target. Or as we PO’s like to say a “Hypothesis”
Lagging metrics: Revenue, Orders, RR, Profit.
We do measure these post factum, only after a certain period.
Hopefully by now you understand that segmentation of your metrics is completely up to your needs and your imagination.
Life Stages and Product Metrics
Throughout the full lifecycle of your project, you will need a various combination of metrics – to create reports to your stakeholders or customers. These combinations heavily rely on the purpose why you need them at a certain stage in your project.
It’s important to note that these affect heavily on the further creation of your KPI’s (more on those later). Following are examples of metrics on each stage of your product.
Stage 1: Entering the Market
Our opening step into the market is to get our first customers, and of course not “drowning”.
To understand how well our business processes are mapped and working, we’ll focus on the following metrics:
- New Daily Users
- Fail/Error Rate
- Conversion per one purchase (C1)
Stage 2: Expansion of our product
Here product owners can concentrate on a larger picture; if their product is growing that is. Your company wants to cover the market as much as possible with its product, generate awareness, launch shares, etc.
- Market Share (If you’ve done your homework on your competition)
- Quality of Service (QoS)
Stage 3: Loyalty growth
We can finally admit to everyone we’re in it for the money, at this stage we integrate large scale metrics. This is the result of accumulated experience and data derived from previous stages of your project.
- C2, C3 (Conversion per n purchase[s])
Fun fact: According to statistics – If your customer bought your product 3 times in a span of half-year, you absolutely have his loyalty!
The Tree of Product Metrics
With all the earlier data in hand our Product Owners can finally generate something known as Product Metrics Tree.
Example from Google
Here’s a few general rules to keep in mind when generating your tree:
- Just like a tree in real life, you must build it from top to bottom (wait…). The core of it being the main metric of your product, typically however, it revolves around money – profits.
- Each level or following metric, must decompose into its component metrics.
- You read/analyse your tree from bottom to top.
And to close this all off, remember that product owners use all these metrics to create KPI’s. Thus, metrics show you the results of your actions, KPI’s show us the results that we can achieve in the future.
That about does it, by now I hope you have a starting off point to dive deep into this fascinating calculus subject.
If you’re wondering more about what it’s like being a product owner, or about to become one I suggest you read Mat Balez’s take on it!
And if you’re too lazy to read all that, make sure to consult this comic when in doubt and working with your developer team!
Before you go, what do you think drives a successful project the most? Tell us in the comments!
Stay classy business or tech nerds!