As a product manager, metrics affect every move you make. You need to know the right ones to get the job done—and to prove you did it right.
Today’s Product teams are under increasing pressure to deliver outstanding products and exceptional user experiences. Three new market dynamics have contributed to the evolution of our product expectations:
- Subscription models
- Fierce competition
- Access to data
Product analytics provide the insight necessary to evaluate your last roadmap planning session and make informed decisions going forward. General business metrics are important as well, so you can tie your activities back to overall company goals. Here are six critical product management KPI’s (Key Performance Indicators) that every product manager should know.
- Monthly Active Users (MAUs)/Daily Active Users (DAUs)
- Customer Retention Rate (CRR)
- Customer Satisfaction Score (CSAT)
- Net Promoter Score (NPS)
- Customer Acquisition Cost (CAC)
- Monthly Recurring Revenue (MRR)/Annual Recurring Revenue (ARR)
The Monthly Active Users (MAU) metric measures the number of different users who open your product within a 30 day period. As the name implies, MAU demonstrates how your platform’s performance is attracting and retaining users in a month’s time. The Daily Active Users (DAU) metric provides that information daily.
Product managers need to know how many active users they have on a monthly and/or daily basis for many reasons. MAU and DAU give insight into engagement, adoption, and overall user health. An active user receives value from regular interactions with your product. Some companies use the Average Page View count to get an overview of customer engagement. However, keep in mind that page views do not capture interactive activity. MAU and DAU are more accurate indicators of how user engagement since it shows how much time a user spends interacting with your product. Knowing how well (or poorly) your product retains users is critical for long-term growth.
Customer Retention Rate (CRR) is the percent of your existing customers who remain with your company for a defined period of time, such as a month. When a customer does not renew their contract, it’s known as “churn.” Product managers pay attention to retention rates because a poor product experience for the consumer is often a churn factor. Use our Metrics Calculator to find your retention rate or, if you fancy yourself a nice math activity, use the formula below.
To calculate your CRR, take the number of customers you had at the end of the month (E) and subtract the number of new customers (N) you gained. Then divide that number by the number of customers you started with (S). Multiply by 100 to get a percentage instead of a decimal.
((E-N) / S )x 100 = CRR
Here is what your equation may look like if you had 100 customers at the end of the month and gained 25 new customers.
((100 – 25) / 80 ) x 100 = 93.75%
Customer Satisfaction Score (CSAT)
The Customer Satisfaction Score (CSAT) is the average satisfaction score of customers influenced by a particular experience. You’re probably familiar with the CSAT format. The question is typically worded like this: “How satisfied are you with X?” Users can then select from a range of options from “Extremely Satisfied” to “Extremely Dissatisfied”
While CSAT is important to gauge customer sentiment, it should be used alongside other product analytics to get a balanced view of user health and engagement. Another best practice to keep in mind is timing. Timing is everything when it comes to surveys. Triggering a survey following an important event, like the end of onboarding or first use of a feature, will provide a more accurate sentiment.
Net Promoter Score (NPS)
The Net Promoter Score (NPS) tells you the percentage of your customers who would recommend your product. Following best practices, use the following verbiage when carrying out NPS surveys:
“On a scale of zero to 10, with 10 being the highest, what’s the likelihood that you would recommend our company to a friend or colleague?”
Customers who respond with a score of 9 or 10 are called promoters, while those who provide a score of 6 or lower are detractors. Responders in the 7-8 range are considered passive and are not counted calculating NPS. Use our NPS calculator to make easy work of finding your Net Promoter Score, or use the formula below:
% Promoters – % Detractors = NPS
If 80% of your responders are promoters and 10% are detractors, your NPS is 70%.
80% – 10% – 70%
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is how much it costs for you to acquire one customer. It factors in a variety of expenses like advertising costs, the cost of any software your teams use, and employee salaries.
Sales & Marketing Costs/Total New Customers = Customer Acquisition Cost
While this metric heavily involves Sales and Marketing, Product teams can (and should) use CAC to improve the product so it can create long term value. Product teams can also affect CAC by providing product-led growth opportunities that cut down on Sales and Marketing costs. Free trials are a great example. If you provide a good enough product experience, a free trial can convert prospects to customers without a sales rep even having to be involved.
Monthly Recurring Revenue and Annual Recurring Revenue
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are used by contract-based businesses to track the value of their active accounts. These metrics are commonly used by SaaS businesses to track the success of their company. Because of their importance, everyone in the business should be aware of this metric. Whether a business chooses to track their recurring revenue monthly or annual can depend on contract length, deal sizes, growth stage, or just preference.
Calculate your MRR by multiplying the total number of paying customers by the Average Revenue Per Account (ARPA).
# Customers x ARPA = MRR
So if you have 100 customers who spend an average of $80 per month, your MRR is $8,000.
100 x $80 = $8,000
Use Product Management Metrics to Create an Effective Product-Led Strategy
Now that you have a grasp of how to measure the most important product management metrics, it is time to develop a product-led growth strategy. Download our e-book and learn how to deliver personalized product experiences through product-led strategy.