The Analytika is a dekadal newsletter that is delivered directly to your email. It focuses specifically on the topics of data and business analytical techniques for product managers.
Hey! I feel good to come back with another post. In the previous post, we talked about an estimation technique mostly used for business analysis. In this article, I thought, it is better to go over a few popular metrics used by product managers.
If you’re starting your career in Product Management, I would highly insist you brush up on your skills in data analysis. It is essential to know how to work with data and prepare metrics.
Once you settle in your new job, one of the key activities you will be doing is product analytics, preparing and analyzing your product met. It is part and parcel of the product manager’s role unless you have a dedicated data engineer or scientist helping you out. Even so, you will have to guide them on what type of metrics you will be looking to collect and analyze.
In this post, my aim is to provide a list of key metrics that are popular among product managers. Here is the list.
1. Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) refers to all ongoing revenue for a product or business, projected over one year. Companies that offer yearly subscriptions use this metric to determine how much revenue they can expect each year.
Method to calculate:
ARR = (Annual subscriptions) + (additional ongoing revenue) – (cancellations)
2. Churn Rate
Churn is a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions. A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service.
Method to calculate:
Churn Rate = (Customer lost in period) / (Customer at the beginning of a period)
3. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) measures how much an organization spends to acquire new customers. It is the total cost of sales and marketing efforts and property or equipment needed to convince a customer to buy a product or service.
Method to calculate:
CAC = (MCC + W + S + PS + O) / CA
MCC: Total marketing campaign costs related to the acquisition
W: Wages associated with marketing and sales
S: The cost of all marketing and sales software
PS: Any additional professional services (e.g., consultants) used in marketing/sales
O: Overhead
CA: Total customers acquired
4. Customer Lifetime Value (CLV)
Lifetime Value (CLV) estimates how much revenue a customer represents a business over the life of that relationship. This is a critical metric for a company trying to gauge the cost efficiency of acquiring new customers and supporting them over time.
Method to calculate:
CLV = AP x CP x n
AP: Average dollar amount of a purchase
CP: Number of customer purchases per year
n: Average of the length of the customer relationship in a years
5. Monthly Recurring Revenue (MRR)
Monthly recurring revenue (MRR) is a calculation of revenue generation by month. Many Software-as-a-Service (SaaS) companies view this as “the holy grail metric” because it conveys an up-to-date measurement of the company’s health from an income standpoint. For more in-depth insight, monthly recurring revenue can be broken into specific segments such as new business MRR, expansion MRR, and churned MRR.
Method to calculate:
MRR = Monthly subscriptions + additional ongoing revenue – cancellations
6. Net Promoter Score (NPS)
A net promoter score is a method of using a single survey question to gauge customer satisfaction with a product. Businesses can send out this question— “On a scale of 0 to 10, how likely are you to recommend [our product or company]?”—at various stages of the customer’s journey.
Method to calculate:
0 - 6 = Detractors 7 - 8 = Pasives 9 - 10 = Promoters
7. Customer Retention Rate (CRR)
In marketing and product management, retention rate refers to the percentage of customers who continue paying for a product over a given timeframe. This is a critical success metric for subscription-based businesses, such as SaaS software providers and companies whose customers repeatedly buy the same products from them, such as milk and coffee brands.
Method to calculate:
CRR = ((CE-CN)/CS) x 100
CS: number of customers you had at the beginning of the measurement period
CE: number of customers you had at the end of the period
CN: number of new customers who signed up for your product during the period
8. Turnover Rate
For a product or marketing team, turnover rate refers to the percentage of customers lost over a period of time. For a SaaS company, the turnover rate will include both customers who actively cancel their subscriptions and simply don’t renew them. Many businesses refer to the customer turnover rate as churn.
Method to calculate:
CRR = (CL/(CS-CE)) x 100
CS: total customer count on day 1
CE: number of new customers you acquire during the period.
CL: number of customers you lose during the period.
9. Average revenue per user (ARPU)
ARPU is revenue generated per user monthly or annually. This metrics is useful, especially to define the future service revenue in case you’re going to change the pricing plan or roll out a promotion.
Method to calculate:
ARPU = (Monthly recurring revenue) / (total number of accounts)
10. Active User per Day or Week or Month (DAU/WAU/MAU)
The number of active users per day or week, or month. They track how many unique visitors or users per day (DAU), week (WAU), or month (MAU). A unique visitor is one who visits your website and performs a valuable activity once within a given period of time.
11. Daily to Monthly Active User Ratio (DAU/MAU)
Also called “Stickiness,” it is simply the ratio of DAU and MAU. It is used to track the growth or decline of a product and also in forecasting, budgeting, or making a decision to develop new features. However, not every product must be used daily to be considered successful.
Method to calculate:
DAU/MAU = # of Daily active users / # of Monthly active users
12. Paid and Organic Traffic
Organic traffic is related to the number of visitors who found a webpage via search. Paid traffic is related to the number of visitors who come from paid sources, for example, paid search, social media ads, or sponsored content.
13. Bounce Rate (BR)
Bounce rate is the percentage of users who visited only one page of a website or app and left. It allows you to track the user behavior and understand how to optimize your product to reduce this number and increase user attention.
Method to calculate:
BR = (VE/TV) x 100
VE: number of visitors left after visiting one page of the app or website
TV: total number of visitors to the site or app
14. Sessions and Actions Metrics
The “Number of Sessions per User” is the measure of how often users come back to the site. Similarly, the “Number of Actions per Session” is the measure of how many actions are performed by a user per session on the website. This data is useful when performing A/B testing to make decisions about features, UX elements and to understand customer behavior.
15. Customer Satisfaction Score (CSAT)
It measures the overall level of content or discontent of a user about a specific product or service feature. Usually, users are asked to rank a product or service on a scale of 1-3, 1-5, or 1-10.
Method to calculate:
BR = (Sum of Scores) / (Number of Respondents)
16. Trial Customer Conversion Rate
This measure is the rate at which free trial users convert to paying customers. It will help you forecast how many paying customers you’ll generate from a given number of trial users.
Method to calculate:
CCR = (number of paying customers) / (number of trial users)
Metrics Framework
If you wonder what metrics to use, you can refer to the following frameworks. They are intended to help you choose the right metrics based on your priority and focus.
1. AARRR Pirate Metrics
AARRR Pirate Metrics framework is an acronym for a set of five user-behavior metrics that product-led growth businesses should be tracking: acquisition, activation, retention, referral, and revenue.
Acquisition (or awareness) – How are people discovering our product or company?
Activation – Are these people taking the actions we want them to?
Retention – Are our activated users continuing to engage with the product?
Referral – Do users like the product enough to tell others about it?
Revenue- Are our personas willing to pay for this product?)
2. THE HEART METRICS
The HEART framework is a set of user-centered metrics. It was developed at Google to evaluate the quality of the user experience and help teams measure the impact of UX changes. It is broken down into 5 factors:
Happiness: How do users feel about your product? Happiness is typically measured by user satisfaction surveys, app ratings and reviews, and net promoter scores.
Engagement: How often are people coming back to use the product? Engagement can be measured by the number of visits per user per week, session length, or key action, like the number of photos uploaded or songs listened to per user per day.
Adoption: How many people complete the onboarding process and become regular users? Adoption is measured by the number of new users over a period of time or the percentage of customers using a new feature.
Retention: What percentage of users are returning to the product? Retention is measured by churn.
Task success: Can users achieve their goal or task quickly and easily? Task success is measured by factors like efficiency (how long it takes users to complete the task), effectiveness (percent of tasks completed), and error rate.
3. RARRA Metrics
This is identical to the AARRR metric seen earlier. The only difference is that Retention gets higher priority over Acquisition. The rationale is that the product team should first focus on retaining the user base by providing great user value instead of acquiring new customers.
Retention: Give your customers incredible value so they will use your app over and over.
Activation: Make sure new users see your app’s value the very first time they launch it.
Referral: Get them sharing and talking about your app.
Revenue: How to monetize your app
Acquisition: Acquire new users
Alright, this has been a very long post. I hope I have given a pretty good picture of key metrics used by product managers. In fact, there are other types of metrics mainly used by Product Owners based on evidence-based management techniques. I will bring them in one of the future posts.
References
The above information was pulled in from the below resources just presenting you the most important ones. They have done a great job in explaining the above metrics in greater detail. I highly recommend you to visit the below link to get them for more information.
The Analytika is a dekadal newsletter that is delivered directly to your email. It focuses specifically on the topics of data and business analytical techniques for product managers.