Product Metrics: What Do They Mean?

Good data is the foundation for good decisions. Let's break down the 13 most commonly used product metrics today and how to use them.

Table of Contents

Business metrics:

• Monthly Recurring Revenue (MRR)
• Annual Recurring Revenue (ARR)
• Customer Lifetime Value (CLTV)
• Average Revenue Per User (ARPU)
• Customer Acquisition Cost (CAC)
• Earned Growth Rate (EGR)

Engagement metrics:

• Churn Rate
• Retention Rate
• Week 1 Engagement
• MAU/DAU Ratio

Customer Satisfaction Metrics:

• Net Promoter Score (NPS)
• Customer Effort Score (CES)
• Customer Health Score (CHS)

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Product Metrics, Sorted By Category

There are three main categories of product metrics: business metrics, engagement metrics and customer satisfaction metrics. Each category provides unique insights into different aspects of your product.

Business Metrics

Business metrics are vital tools for measuring a company's performance and guiding strategic decisions. Understanding these metrics helps in evaluating success, forecasting growth, and identifying areas needing improvement.

Monthly Recurring Revenue (MRR)

What it is: MRR is the predictable revenue a business expects to receive every month from its subscribers or ongoing contracts.

Importance: It provides a clear view of the company's financial health and steady income.

Influence on Decisions: MRR assists in budget planning, forecasting future growth and evaluating the success of subscription-based models.

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Annual Recurring Revenue (ARR)

What it is: Similar to MRR, ARR is the yearly predictable revenue from subscriptions or ongoing contracts.

Importance: It offers a long-term perspective on revenue stability and growth.

Influence on Decisions: ARR is crucial for long-term strategic planning, investment decisions and understanding year-over-year performance.

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Customer Lifetime Value (CLTV)

What it is: CLTV represents the total revenue a business can expect from a single customer throughout their relationship.

Importance: It helps in determining the long-term value of customers and assessing the profitability of customer acquisition.

Influence on Decisions: CLTV influences marketing spend, customer service strategies and retention efforts.

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Average Revenue Per User (ARPU)

What it is: ARPU measures the average revenue generated per user or customer.

Importance: It provides insight into the revenue-generating effectiveness of the customer base.

Influence on Decisions: ARPU is used to guide pricing strategies, marketing initiatives, and product development. Following ARPU over time can show how efficiently you are monetizing your product.

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Customer Acquisition Cost (CAC)

What it is: CAC is the total cost of acquiring a new customer, including marketing and sales expenses.

Importance: It assesses the efficiency of marketing strategies and the value of new customers.

Influence on Decisions: CAC guides budget allocation for marketing, helps in evaluating the effectiveness of acquisition channels and informs pricing strategies.

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Earned Growth Rate (EGR)

What it is: EGR measures the growth in revenue from existing customers, considering both upgrades and churn.

Importance: It reflects customer loyalty and the success of upselling and cross-selling strategies.

Influence on Decisions: EGR is crucial for assessing customer satisfaction, planning retention strategies, and adjusting product offerings.

Engagement Metrics

Engagement metrics are essential in understanding how users interact with a product. They provide insights into user behavior, product appeal, and areas for improvement.

Churn Rate

What it is: Churn rate is the percentage of customers who stop using a company's product or service over a certain period.

Importance: It indicates customer satisfaction and product stickiness.

Influence on Decisions: Understanding churn rate is critical for developing customer retention strategies and improving product or service offerings.

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Retention Rate

What it is: Retention rate measures the percentage of users who continue using a product over a specific time period. It's the reverse of churn rate.

Importance: It indicates user satisfaction and product stickiness.

Influence on Decisions: Retention rate guides improvements in product features, user experience and customer service strategies.

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Week 1 Engagement

What it is: This metric tracks user interaction with a product during the first week after acquisition.

Importance: It provides early indicators of user interest and potential long-term engagement.

Influence on Decisions: Week 1 engagement helps in refining onboarding processes and initial user experience to boost long-term retention.

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DAU/MAU Ratio

What it is: The Daily Active Users (DAU) to Monthly Active Users (MAU) ratio measures the engagement intensity of a user base.

Importance: It reveals how often users engage with the product within a month.

Influence on Decisions: This ratio helps in understanding user engagement patterns and influences content updates, feature releases and marketing campaigns.

Customer Satisfaction Metrics

Net Promoter Score (NPS)

What it is: NPS measures customer willingness to recommend a product or service to others.

Importance: It gauges overall customer satisfaction and loyalty.

Influence on Decisions: NPS influences customer service policies, product improvements and marketing strategies. It also helps identify promoters and detractors.

Customer Effort Score (CES)

What it is: CES assesses the ease with which customers can get their issues resolved or interact with a product or service.

Importance: It reflects the effectiveness of customer service and user experience.

Influence on Decisions: CES informs changes in support processes, user interface improvements and product usability enhancements.

Customer Health Score (CHS)

What it is: CHS combines various metrics to evaluate the overall health of the customer relationship.

Importance: It predicts customer retention, satisfaction and potential for upsell.

Influence on Decisions: CHS guides customer engagement strategies, product development priorities and targeted interventions for at-risk customers.

What Are Product Metrics?

Product metrics are quantifiable data points that help measure performance, user engagement and overall success for a software product. These metrics provide insights into user behavior, market trends and the product's continued viability.

By tracking key metrics, business leaders can make data-driven decisions to optimize their product strategies and enhance user experience.

How to Select and Prioritize Product Metrics

As we mentioned above, good data is the foundation for good decisions. However, it all comes down to using the right metrics at the right times.

Here are some best practices for selecting and prioritizing product metrics.

1. Align Metrics with Business Objectives - Choose metrics that directly reflect your product's contribution to the company's broader goals. For instance, if your goal is market expansion, focus on user acquisition and market penetration metrics.
2. Understand Your Users - Select metrics that give insights into user behavior and preferences. Metrics like user engagement and satisfaction scores are vital for products aiming to enhance user experience.
3. Consider Product Life Stage - Different stages of product life require different metrics. For a new product, focus on user growth and engagement, while for a mature product, prioritize retention and revenue metrics.
4. Balance Leading and Lagging Indicators - Combine leading indicators (like user engagement) that predict future trends with lagging indicators (like revenue) that reflect past performance. This balance provides a comprehensive view of your product's performance.
5. Ensure Measurability and Relevance - Choose metrics that are easy to track and provide meaningful data. Avoid vanity metrics that look impressive but don't contribute to informed decision-making (e.g., social media "likes").
6. Regular Review and Adaptation - Periodically review your chosen metrics to ensure they remain relevant to your evolving business strategy and market conditions. Be prepared to adapt and introduce new metrics as needed.
7. Stakeholder Communication - Clearly communicate the chosen metrics and their rationale to all stakeholders. This ensures everyone understands what is being measured and why it matters.

Avoiding common pitfalls

In the process of selecting and prioritizing product metrics, it’s crucial to avoid common mistakes, like excessive dependence on a singular metric.

Focusing exclusively on the One Metric That Matters (OMTM) risks neglecting other crucial business areas, which can lead to missed optimization opportunities. The OMTM can be overly broad, not providing enough detail to inform decisions across all facets of a product like adoption, retention, and revenue.

While we don't want to bombard stakeholders with too many metrics, an OMTM approach may not reflect the diverse metrics that ultimately matter.

Best Practices for Tracking and Optimizing Product Metrics

Lastly, when using data to track and optimize your product, it's important to be responsible with that data.

Here's the best way to do that:

1. Use the Right Tools - Implement analytics tools that are capable of tracking your specific metrics accurately. Ensure these tools can handle the scale of your data and provide real-time insights. Don't blindly accept analytics. Be sure it's correct.
2. Consistent Data Collection - Maintain consistency in how data is collected and processed. Inconsistent data can lead to misleading conclusions and poor decision-making.
3. Segment Your Data - Break down your data into segments such as user demographics, behavior or product usage. This segmentation provides deeper insights and helps tailor strategies to specific user groups.
4. Test and Iterate - Use A/B testing or similar methodologies to test changes and understand their impact on your metrics. Continuous iteration allows for fine-tuning strategies and product features.
5. Benchmark Against Industry Standards - Compare your metrics with industry benchmarks to understand your product's position in the market. This helps in setting realistic goals and expectations.

To Sum It Up

Product metrics are more than just numbers. they are a window into the health and future of your product.

By carefully selecting, tracking and optimizing these metrics, you can make informed decisions that drive growth and enhance user satisfaction. Remember, the key is not just in collecting data, but in choosing the right data and using it wisely. Stay adaptable, stay informed, and let your product metrics guide you to success.

• Interested in more product leadership insights? Check out Archie, 8base's AI solutions architect

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