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Three Business Efficiency Metrics Every Product Manager Must Know

This article was originally published in Fast Company.

Interest rates are soaring. Currency pressure is mounting. A recession may be looming.

These macroeconomic headwinds are hard enough to deal with on their own. But if you’re a fast-growing product company—for which the traditional playbook is to grow at all costs—then times are doubly difficult.

As a Chief Product Officer with over two decades of experience, I can tell you with certainty that in the current market, all product managers (PMs) should be thinking in terms of efficiency—how can we do more with less? For example, can engineers increase their velocity? Or their productivity? How about both?

If you want your teams to get more efficient, then you need to start by ensuring you know what efficiency means for your business.

Knowledge Is Power 

As a PM, if you’re not conversant with this lingo—that is, with the business side of your product—then you’re only doing half your job. Put simply, a PM can’t live on a Trello board; you need to care as much about the budget as you do about the product.

Indeed, as a PM, there’s nothing that’s not your job. Not only should you know which of your customers are the biggest, but you should also know where your profit margins are the biggest, what your lead conversion rate is, and which cross-selling tactics are the most effective.

That’s because a PM shouldn’t make decisions in a bubble. On the contrary, you should be aware of how one seeming tweak in a code push can affect costs in a global supply chain.

Master These Metrics 

To these ends, here are three metrics that every SaaS PM must know as readily as they do the emoji panel in their Slack channels:

Metric #1: CAC

CAC stands for customer acquisition cost, or how much you’re spending on sales and marketing to gain a new customer.

A common way to measure it is the CAC payback period—how long it takes for the customer to pay you enough to cover the money you spent to acquire the customer. It’s a great measure of your go-to-market efficiency, and you calculate it as the number of new customers you get in one quarter divided by the total sales and marketing spend in the previous quarter. You want this number to be as low as possible, ideally below 12 months. If a client churns before the CAC Payback Period, you lose money on that customer. Imagine if a majority of your customers did this!

Why is CAC so important? Because if you need to cut costs, there’s no target richer than CAC. As Willie Sutton would say, “That’s where the money is.”

Indeed, companies in “growth mode” plow enormous resources into their CAC. In its infancy, HelloFresh was said to have a CAC of $94. Early-days Uber, flush with billions in venture-capital cash, enticed drivers with all manner of incentives—signing bonuses, loans for a car, guaranteed hourly rates, even free iPhones. It doesn’t take a drunken sailor to foresee how quickly these perks can spiral out of control.

Nor should it take a CFO to figure out how to rein them in. Again, that’s your job as a PM—or at least part of it. An inefficient PM focuses only on product; a good PM understands how the business works—everything from its metrics to its methodology (at Gainsight, we’re big fans of product-led growth, or PLG).

Metric #2: GRR

GRR stands for gross-revenue retention—basically, how many customers renew their subscriptions.

As a PM, you need to track how your product is used, so that you can alert your team when certain thresholds are met—when churn or crashes get too high, when the number of log-ins falls too far below the number of users, when a new feature isn’t getting the love you expected.

Become a product monitor and you’ll not only become the in-house version of Google, but your company’s secret weapon to drive growth.

After all, most growth is incremental, arising from small enhancements that make your product stickier. Given their cross-functional responsibilities, a PM is uniquely positioned to spot these opportunities and drive the business forward.

Metric #3: NRR

NRR stands for net-revenue retention, or how many customers renew—and expand—their subscriptions.

NRR is important because fluency with this metric can facilitate growth. For example, let’s say your customer success colleagues see that many customers would benefit from an option that’s part of your “premium” package. In that case, you might partner with your engineering colleagues to implement a pop-up message that says something like:

“We see you’re downloading files one at a time. Would you like to try downloading multiple files all at once? This capability costs $5/month, and we’re so sure you’ll enjoy it, we’re offering a month-long free trial.”

Inefficient PMs might wall themselves off from customer feedback. “Not my lane,” they might mutter under their breath. A good PM not only studies customer success, but also leverages these learnings so that customers stay customers, buy additional offerings, and then pitch your product to their peers.

Curiosity Saved the Cat 

The best PMs I’ve known all share a fundamental trait: They’re intensely curious. Rather than stay in their proverbial lane, they seek out greater responsibilities. They ask to sit in on meetings outside their department, to be given access to more info, and to enroll in continuing education courses. They know that to be a product manager, you need to care not only about how your product is built, but also about how it’s sold, used, and serviced.

To these ends, the best PMs are as up-to-date with the yardsticks of engineering as they are with the yardsticks of business. They can rattle off their cycle time and deploy frequency as easily as they can detail their PLG strategy.

If this mindset doesn’t describe you, then I’d recommend you hit the books. Otherwise, when the next call for efficiency rears its head, you might be next.

Learn More

To learn more, don’t miss the next episode of our Durable Growth Webinar series on 11/28 at 10:00 a.m. PST, Grow Through Your Product.