Essential Product Metrics Every Startup Founder Should Know

Introduction

Product metrics vary across products and industries, but there are common ones that benefit any product. Choosing the right metrics as key performance indicators is crucial in product development. Experts recommend having metric tracking in place when launching a product or feature.

In general most of them works in way - The Bigger the Better. So try to increase them, but they defines and explain different aspects of your product and your users behaviour.

In general product metrics can be grouped to evaluate performance. A simple categorization divides them into economic and engagement metrics.

Product Economics

Economic metrics measure things that impact the profit equation directly, such as revenue or costs. Product leaders rely on these metrics to assess the quality of marketing efforts or the viability of the business model. Below is a list of five of the most important economic metrics.

1. Monthly Recurring Revenue (MRR)
   Monthly Recurring Revenue (MRR) is a vital SaaS metric that provides a reliable and predictable view of your monthly customer-generated revenue. It not only reflects your current earnings but also indicates your growth over time. Consistent MRR enables accurate financial forecasting and empowers informed business decisions. Learn more about the magic formula involving Average Revenue Per Account (ARPA) for a detailed explanation.

2. New customer growth rate
   New customer growth tracks the number of brand new customers a company obtains. It distinguishes between new and repeat business and indicates future growth. The growth rate is calculated by taking the difference in customers between two periods, dividing it by the number of customers in the previous period. For example, going from 100 customers to 500 customers yields a growth rate of (500-100)/100 = 4, or 400%. If you have such Growth rate for months - you are the next unicorn!

3. Churn - The Lower the Better
   Churn is a key metric for subscription businesses, representing the percentage of lost customers within a specific period. It's calculated by dividing the number of cancelled subscriptions by the total customer base. Lower churn indicates a strong alignment between your product and customer needs.

4. Cost per acquisition
   Cost per acquisition (CPA) or customer acquisition cost (CAC) measures the expense of acquiring a new customer. It's a significant product metric that affects pricing decisions. The price must cover both the cost of delivering the product/service and the customer acquisition cost. CPA is calculated by dividing the total direct marketing costs for a specific product by the number of new customers acquired.

5. Customer lifetime value
   Customer lifetime value (CLTV) gauges the value of an average customer to the company. It's calculated by dividing the average lifetime spending per customer by the average cost to serve them. For instance, in a subscription business, you multiply the subscription margin (price - variable cost) by the average subscription length to determine the average gross margin per customer.

Product Engagement

Engagement metrics track customer/user interaction with the product, revealing what's effective and what's not. Product leaders rely on these metrics to assess customer value and the performance of various product aspects/features. Here are five vital engagement metrics.

1. Net promoter score
   Net Promoter Score (NPS) is a widely used metric that gauges customers' likelihood to recommend your product. It's calculated by surveying customers and subtracting the percentage of detractors (ratings of 6 or lower) from the percentage of promoters (ratings of 9 or 10).

2. Active users
   Active users count the number of users who actively engage with the product within a specific timeframe. It provides a more accurate measure of the user base compared to total account numbers. The optimal measurement period for active users, like daily or weekly, depends on the expected frequency of product usage by users.

3. Session length
   Session length measures user engagement duration and reflects user satisfaction with the product. To calculate session length, subtract the start time from the end time for each session and then determine the average session length. Typically, very short sessions (a few seconds) are excluded to filter out accidental or bot-related activity.

4. Number of sessions
   The number of sessions tracks user frequency within a specific period, typically aligning with the active users metric. It provides insights into product stickiness and user importance. Low numbers of active users or sessions may indicate a product's failure to meet user needs effectively.

5. Feature usage
   Feature usage metric assesses the percentage of users utilizing different product features. It aids product leaders in prioritizing important features and potentially removing or deprioritizing unused ones. To calculate feature usage, divide the number of users who used a feature by the total user count within a specific period. For more details on measuring product feature usage, refer to this post.

How to track them all?

Well, today we have huge number of options to do that, usually it requires a bit of mix of technologies/approaches to make it work. But it always better to start simple

1. Analytics Tools
   Start from using a solid tools like Google Analytics
   that you can install with a simple snippet, or go with UserMaven, also there is quite nice heatmaps and recording you can get via Hotjar

2. Do User Feedback and Surveys
   Gather user feedback and conduct surveys to gain qualitative insights and supplement quantitative metrics. This can help uncover valuable information about user preferences and satisfaction. To make it work you can use Google Forms, TypeForm

3. Custom Data Collection
   As you grow you can consider a bit more precise configurations and data analytics approaches. Implement custom data collection through or event tracking for example via Mixpanel. This allows you to capture specific metrics tailored to your product's unique needs

Conclusion

When it comes to success, there's no one-size-fits-all formula. The metrics that matter most depend on your goals and situation. If you're running a social platform with affordable products, focusing on maximizing the Net Promoter Score can help you bring in more users and boost sales. But if you're in the B2B SaaS game with higher subscription prices, it's all about prioritizing Customer Lifetime Value.
By keeping your existing customers happy and growing your business steadily, you'll be in a solid position to win over new clients.

Remember, customizing your set of metrics to fit your unique business needs is the secret sauce to making smart decisions and achieving your desired outcomes.

What do your track on your product and how? Share in comments!

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