Creating an effective product roadmap
, successfully launching that product, and sustaining its performance in the market is quite a challenge, especially in the marketplace that’s as competitive as it is today. No matter how awesome the product features are or how great are the product manager’s intuition and vision, the success of a product will only depend on the impact it has on the customers and, consequently, the value it has brought to the business.
To achieve this, it’s necessary to fully understand how customers use your product, how they engage and derive value from it, and to what level it satisfies their needs and expectations. However, this understanding is not possible without previously collecting comprehensive, detailed, and precise information about product performance, market adoption, the success of certain features. This is particularly true in the modern, data-driven market and companies adopting a product led growth strategy.
That’s why it’s necessary for the organisation to use product metrics to measure product success and be able to constantly assess how well the product performs. Of course, these product metrics have to be the right ones, suitable for both the product and the particular type of organisation.
Proper metrics will reveal the product’s strengths and weaknesses, provide insight into its health, help discover potential bottlenecks in the process, and allow the organisation to timely deal with any potential issues and improve where necessary.
Table of Contents
What are Product Metrics?
Product metrics are quantitative measurements of data that indicate how and how often the customers interact with the product and serve to evaluate its overall success. They’re used to assess the product performance in relation to the set business goals and check whether it aligns with the overall strategy of the organisation.
Any attempt to conduct a product performance evaluation without well-defined product metrics is more likely to look like guessing than a serious analysis and will deliver misleading and inaccurate results. Product metrics are used across the organisation and provide valuable information to many different teams, including product developers, marketing department, customer support, and higher management, among others.
As the data derived from the measurements, product metrics often have a numeric component to them, indicating rate, time, or ratio for a certain aspect of the product’s performance. However, these simple metrics don’t provide the reason for changes in customer behaviour or fluctuations in product performance.
Rather, they serve as the foundation for a deeper understanding of the behaviours that drive those changes. By providing the data month benefits and downsides of the product and its features after the launch, product metrics serve as a guideline for improvements over time.
Why are Product Metrics Important?
Without product metrics, organisations and teams working on the product would have a hard time finding reliable and actionable information on how the product is performing in the market. Because product metrics quantify a product’s performance, provide immediate and objective data on customer engagement, and express it as easily digestible information, they allow businesses to quickly respond to all feedback from users and adjust and improve their product strategy.
When the right product metrics are used, they provide an opportunity to make more informed and intelligent decisions throughout the development process. With the help of these metrics or KPIs, the company can have a clear picture of which aspects and features of the product resonate with the customers and which don’t. When they understand what drives their customers, teams working on product development can use this knowledge to improve the product and make it a better fit for customer needs.
Another benefit of using product metrics is that they can help build team alignment and make sure everyone is working towards the same goal. As already mentioned, product metrics are quantifiable and precise indicators, so building the product development process around these objective measurements minimises the disputes among the teams and individuals involved and ensures that each of them shares a common objective.
Product metrics are particularly useful for product managers or other individuals in charge of the product journey. Getting the green light from executives for certain projects or products, especially those that are more costly, is often quite challenging. However, with product metrics providing objective and quantifiable support for the project, it’s much easier for product managers to illustrate and explain to the executives the positive impact the project will have and the value it will bring to the company.
Finally, product metrics introduce accountability for everyone working on the project. With every product development process commonly involving pre-set objectives, the fact that the success of that product in achieving those set goals solely depends on the customer engagement and feedback expressed through product metrics increases the sense of responsibility for every team and every individual in the development process.
What are Different Types of Product Metrics?
As every organisation has its specific structure and every product has its unique properties and features, the metrics used for the evaluation of how the product engages with the customers will differ from company to company and from project to project, especially in different industries.
Still, there’s a set of key common product metrics that can be used when assessing the performance of almost any product and are product metrics that matter.
They are often divided into different categories, depending on which aspects of the product performance they evaluate, such as business goals execution, engagement, or customer satisfaction.
Acquisition
Attracting as many people as possible to the product is the key to its successful performance in the market. The acquisition product metrics measure. The acquisition of new customers and converting visitors to users is usually the duty of marketing and sales teams. These activities can be tracked in different ways, for example, by campaign, vertical, or channel.
To get a clear picture of how meaningful and successful these activities are, organisation use acquisition product metrics that measure when a customer first starts using the product or a metric. It’s commonly expressed through a number of new signups, or, in some cases, qualified leads. The simplest way to calculate it is to divide the number of acquired users by the observed period of time. The results can later be used to evaluate which campaign or channel works the best.
Activation
The activation is the crucial stage in the product roadmap when the new user becomes the active user. Basically, it’s the moment when users move from the acquisition to the stage where the product brings value to them, or starts doing what it was designed to do for customers.
Product teams should strive to bring users to this moment as quickly as possible. The activation can be defined differently for different businesses, and can, for example, be the act of registering for the service, making the first purchase, making a certain number of deposits, etc.
It’s better to view this metric as a percentage than as a count of users as, in that way, the acquisition rate won’t be skewed by the natural user growth. The activation product metric is commonly calculated by dividing the number of activated users by the total number of users who had an interaction with the product. The quantifiable results can be later used to drive the long-term usage of the product.
Engagement
The engagement metric provides an even deeper understanding of customer behaviour than the activation rate as it is a measure of a deeper commitment of a user to the product. To make things simple, it measures how and how often customers interact with a certain product and show how satisfied they are with that product.
Depending on the type of product, these interactions can be something as simple as editing a user profile or sharing a video. To answer the question of how engaged the users are, the metric has to take into account both the frequency and the cadence of executing the key action with the product.
When the key action is defined, the engagement metrics are measured by counting the number of those key actions taken (for example the number of completed transactions or minutes of video watched) and dividing that number by the number of total active users. This way, the product team can gain an understanding of how deep the engagement per user is with the product.
If the number of key actions is not divided by the count of active users, the result may be misleading and paint the picture of a more attractive product than it actually is. The count of engaged users is important for every organisation as increasing numbers on a daily, weekly or monthly basis is essential component of a company’s growth.
Retention
Once the users are engaged, the organisational goal should be to keep that engagement over a longer period of time. The best way to understand whether a certain product has staying power is by measuring it with a retention metric.
This metric provides shows whether the product is bringing in the kind of users that stick around and whether those who are already active users have enough reason to come back. This can be measured by different subcategories of retention metrics, such as churn rate or free-to-paid conversions. Each of them gauges how many users come back over a certain period of time.
For these measurements to be accurate and useful, it’s necessary to properly define the time range in which the retention is observed. It should hit a sweet spot between a period long enough to make repeat visit cycles meaningful and a period short enough that the product team can get timely feedback and react quickly if needed.
Commonly, the retention metric is calculated by dividing the count of continued users of the product, by the total number of customers at the start of the specified period. The retention rate is very important as it, perhaps better than any other metric, captures the product-market fit. This is especially true in the software industry where the retention rate typically correlates with revenue, and, therefore, is critical for organisational growth.
Referral
Needless to say, spreading the word about the product is one of the most efficient pathways to its success in the market. Every company should strive to encourage current customers to advocate for the company’s product and share their experiences with friends and contacts. The referral metric measures the company’s ability and capacity to induce product users to do this.
A good referral rate is a strong signal that the customers are satisfied with the product and loyal to it. Plus, increasing the referral rate can significantly cut down customer acquisition costs (CAC). Furthermore, a high referral can bring in new customers even when the original users are no longer in the market for the product.
Unlike retention, which is typically in the scope of duties of the product team, the referral is usually driven by marketing or customer success teams. The referral rate is calculated by dividing the count of purchases that came through the referral by the number of total purchases.
How to Find the Right Product Metric?
The product metrics detailed above are just some of the numerous ways to evaluate a product’s performance. This means that choosing the right metric to measure the success of a certain product can be rather difficult. In addition, the amount of data available to product teams nowadays are commonly huge, so making sense of it is quite a challenge. Therefore, it’s critical to measure product performance with metrics that will provide meaningful and actionable information.
The most important thing to do is to clearly define business goals. This will be a foundation for the product strategy and provide guidance through the development process. The proper metric may differ for different goals. For example, if the objective is to attract new customers, the success will be measured differently than if the desired outcome is retaining the existing users.
Another crucial step is to make the defined goals measurable. If you can’t measure something, then you can’t improve it. So, rather than setting vague goals, they should be defined in categories that are easy to measure and track. Still, while the quantitative metrics are easier to handle, some space should be left for potential qualitative feedback as it will help a better understanding of customers’ needs.
When creating a product strategy and defining the product metrics, it’s important to ensure that the product team and other teams do not drown in data. Not everything needs to be measured. Measuring something for the sake of measuring will only result in an overwhelming amount of data. Another common pitfall is using the so-called “vanity metrics.”
This is the data that is not actually actionable but it “feels good. For example, the number of downloads won’t tell you much about how the product actually works or how satisfied the customers are. Vanity metrics are not only practically useless but can even be damaging as they can skew the evaluation of product performance.