Product Led Growth (PLG) is the phrase on every SaaS leader’s lips and each Product pro’s mind right now.
Even Gainsight’s CEO, Nick Mehta, has been speaking with fellow leaders to discuss insights on how to increase the impact of PLG on Net Retention Revenue (NRR).
If you’re looking to understand PLG and how to implement it in your own company, then you need to know the terms, phrases, and acronyms and their definitions. To help you, we created this list of the most important terms, what they mean, and why they’re important.
Product analytics terms
- Active Users can be either Daily Active Users (DAUs) or Monthly Active Users (MAUs). The definition depends on how many people or end-users are actively using your product daily or monthly. The number of active users or score measures customer adoption and engagement. With greater usage of leveraged features and licenses, the score becomes a leading indicator for retention, renewals, and chances for expansion.
- User Retention Rate is the percentage of users retained and continually engaging your product during a particular period. Depending on how they are measured (e.g., daily, monthly, or annually), you want to see this rate steadily increase, while accounting for seasonal dips or spikes based on your industry. Tracking user retention is essential because sustainable usage is a leading indicator that your customer finds value in your product. A rise in retention by as little as 5% can indicate a rise in profits of 95%.
- Customer Satisfaction Score (CSAT) gives insight into your customer’s experience while using your product. However, satisfaction is more than making your customers happy. It means they are finding value in your product. The metric is a scale of 1 to 5 associated with a question like “How would you rate your overall satisfaction with the service you received?” Results are averaged to a Composite CSAT usually expressed as a percentage scale: 100% being total customer satisfaction and 0% total customer dissatisfaction. By monitoring this score, you receive direct feedback from customers on where you can improve the product and thus improve customer experience which drives revenue.
- Net Promoter Score (NPS) is a core measurement that most companies use to measure overall customer satisfaction, health, and loyalty. It is also a lead indicator or prediction of future product adoption and growth. The method is to ask a single question: “How likely are you to recommend our product or company?” The answer would be a rating based on a scale of 0-10. Anything from 0-6 are unsatisfied customers or “Detractors.” Answers with 7-8 are “Passives.” They are satisfied but not dedicated to your product. Responses with 9 and 10 are “Promoters” who are loyal to your product, will most likely renew, expand, and be advocates. The score comes from the formula of the percentage of Promoters minus the percentage of Detractors while omitting Passives. The importance of a good NPS indicates customers loyal to your product and are open to upsells, cross-sells, upgrades, and advocacy.
Revenue-related terms
- Customer Acquisition Cost (CAC) is the amount of money you spend to acquire a new customer. This cost is typically higher in SaaS than the amount to retain existing customers. Controlling CAC allows you to invest money more efficiently in the product itself, creating a better customer experience overall. Getting your CAC as low as possible is critical to the long-term success of your company.
- Annual, Monthly, Gross, and Net Recurring Revenue (ARR/MRR/GRR/NRR)
- ARR or MRR metric is the recurring amount that customers pay you for your product or service monthly or annually. Knowing your ARR lets you know the value of your customer install base.
- GRR represents all the customers retained by renewing what they purchased. GRR includes churn, down sells, and contractions. To figure this out take the ending ARR or MRR and divide the starting ARR/MRR during a consistent measurement period for ONLY your existing customers. The maximum is 100%. World Class GRR is 90% to 97%.
- NRR is a Gross Retention Revenue plus upsells. Companies merely existing and keeping their customers will not produce high NRR, meaning they are not expanding their install base.
- When you have the total ARR, you know the value of your installed customer base. It also gives you insight into the shifting value of those customers. Measuring this metric over time provides you with a projection of customer renewals meaning customers value your product.
To make things even easier, we’ve created this handy guide of the most important terms. Save a copy and share it with your team!
