The only way your product management team can ensure data driven decisions is by establishing key performance indicators (KPIs). KPIs track the progress of your team’s work within the context of business and product success.
Product managers who don’t establish and track KPIs are left vulnerable without a clear picture of their team’s or product’s weaknesses.
David Watkins, Director of Product Management at EthOS, has pointed out that successful ventures rely on product managers who can make sense of feedback from multiple sources. Everything from internal conversations to customer surveys and support tickets can provide valuable insight into what users want from the product.
Tracking KPIs like customer satisfaction scores and users per feature will allow product managers to spot common themes. This will help them to prioritize what gets added to the product roadmap to ensure customer success and improve conversion rates.
In this article, we cover 15 KPIs across 3 categories:
Finances
User Engagement
Product Performance
But you certainly won’t need to track all 15. Quantify your team’s progress by selecting 6 or 7 key metrics. Choose the ones most relevant to your business ojectives to inspire stakeholder confidence in your strategies and decision-making.
KPIs vs Metrics
The terms KPIs and metrics can be a bit ambiguous. To clarify, while all KPIs are metrics, not all metrics are KPIs.
What is the difference between a KPI and a metric? The difference between a KPI and a metric is that KPIs are linked to strategic business goals or targets, while other metrics may measure tactical or operational activities.
In other words, KPIs are the most important metrics used to benchmark company goals.
A product manager’s background may impact which KPIs they find most valuable. Product managers and key executives should work together to identify which metrics are most important to track in support of business goals.
The product management metrics we’ve listed are the ones we believe most likely to tie back to common business goals related to websites, software and application.
KPI Metrics to Track Success
We’ll cover profitability first, since it’s often the most important metric. It isn’t the only KPI relevant for business success — it’s only the beginning. But having these KPIs available will not only impact product development; they can also be very motivating for your sales team.
1. Recurring Revenue — Monthly (MRR) or Annually (ARR)
MRR measures predictable revenue generated month to month while ARR measures the annual revenue generated.
For subscription services or SaaS companies (Software as a Service), the MRR metric is valuable to assess revenue across different subscription service packages.
Calculate ARR by taking the MRR at the beginning of the month, add revenue gained from new users throughout the month, and subtract revenue form lost customers.
MRR at beginning of the month
+ MRR from new customers
+ MRR change from upgrading customers
- MRR change from downgrading customers
- MRR churn
= MRR
Monthly recurring revenue (MRR) x 12 = Annual RR (ARR)
2. Average Revenue Per User (ARPU)
ARPU is a metric used to estimate how much money a company gains from one customer. ARPU metric is useful in assessing the effects of new pricing or subscription strategies. Calculate ARPU by:
ARPU = monthly recurring revenue / total number of accounts
3. Customer Lifetime Value (CLTV or LTV)
Customer lifetime value is used to estimate how much profit the average customer will generate across their entire use of the product. This metric is a great way to make financial projections and determine the long term stability of your company. It’s also a helpful metric to determine how much to spend on marketing and onboarding within the context of ROI.
CLTV = ARPU x average customer lifetime
4. Customer Acquisition Cost (CAC)
Customer acquisition cost reflects the amount spent on sales and marketing during a set time frame, then averages it per new customer generated. This metric is important to consider alongside CLTV.
One formula to calculate CAC across a given timeframe is:
CAC = Sales + marketing spend / total number of new customers
5. Customer Retention Rate (CRR)
Customer retention rate is the percentage of customers who stay loyal to a company. Acquiring new customers is often significantly more costly than keeping your current user base.
CRR can be calculated based on the number of customers who have stayed with the company during a specified period.
Retention rate = customers at the end of the period - new customers /
customers at the start of the period x 100
6. Churn Rate
Converse to customer retention rate, customer churn rate is the number of customers who’ve left the company. Tracking and determining why customers may be leaving can be more impactful to the bottom line than acquiring new customers.
Customer churn rate = customers lost / total customers
Revenue churn is another form of churn rate important to judging business success. Revenue curn is the amount of revenue lost due to customer churn rates.
KPI Metrics for Product Usage and User Engagement
Looking at the popularity of different features can help you assess the effectiveness of a product. Data on new feature usage, user actions, and sessions per user are just a few examples.
Let’s dive in further.
7. Users
A number of “user” metrics exist, but the most important KPI to track product usage is the number of active users across a fixed period of time — per day, week, or month.
Calculating the ratio of daily active users (DAU) / monthly active users (MAU) allows you to track decline or growth of a product across time.
Daily Active User / Monthly Active User = %
8. Session Duration
Session duration is an easy way to track digital product usage, often a key factor related to generating revenue. Calculate it by:
Total time / number of users = mean value of session duration
9. Sessions Per User
The number of sessions per user is a measure of the average number of sessions for a particular group of people across a time frame. This metric can be used to judge interest in the product, or to provide information on target audiences.
10. Users Per Feature
Another helpful product usage KPI, users per feature can clarify the success of a particular feature or provide insights into the product's functionality.
11. Number of Users or Web Traffic
Tracking the number of users can be an important KPI for SaaS companies, a number which corresponds to web traffic for websites.
12. Bounce Rate
Bounce rate is a measure of the percentage of users who leave after visiting just one page of a website or application. A high bounce rate likely means there is a problem with your content, site speed, or user experience — and a sign it may be time to optimize.
Product Performance and Customer Satisfaction KPI Metrics
When looking to assign a KPI for product quality, customer experience, or product success, consider these metrics.
13. Support Tickets
Monitoring customer support tickets can give great insight into product quality. Start by tracking the number of tickets weekly or monthly. Your corresponding goal might be to stay under X amount of tickets in a given time frame.
14. Net Promoter Score (NPS)
The net promoter score is the willingness of your customers to recommend your product.
To calculate the net promoter score, first start by asking your customers to give the product a 0-10 rating. Customers who rate it 9-10 are your promoters, 7-8 are neutral, and 0-6 are detractors.
NPS = percent of promoters - percent of detractors
Understanding your NPS can provide insights into expected growth, as well as issues that need to be improved or addressed.
Image source: Datapine
15. Customer Satisfaction Score (CSAT)
CSAT is another metric which can be gathered using a 0 to 10 scale on a customer survey, which helps evaluate average user contentment regarding a specific service or product feature.
To calculate the average score, use this equation:
CSAT = sum of scores / number of respondents
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