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GuidesProduct development6 product metrics your team should be tracking and why

6 product metrics your team should be tracking and why

Last updated

6 June 2023

Author

Dovetail Editorial Team

Reviewed by

Eliz Ayaydin

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As a product manager, you need to be able to measure the success of your product. To do this, you must track the right product metrics. Knowing which metrics are important and how to track them is key to understanding the performance of your product and making sure it meets the needs of your customers.

In this article, we will discuss six important product metrics:

  • Acquisition

  • Retention

  • Churn

  • Customer lifetime value

  • Revenue

  • Net Promoter Score

We'll discuss each of these metrics in detail, how to track them, and why they are important for product teams.

What are product metrics?

Product metrics are a set of measurable indicators used to evaluate the performance of a product or service. They differ from business metrics because they focus specifically on the product itself and how it's used by customers.

While business metrics look at the overall health of a company, product metrics offer a more granular insight into the specific areas that drive product growth and customer satisfaction.

There are several reasons why product metrics are important:

  • They can help identify areas of a product experience that need improvement, as well as measure the impact of changes made to the product

  • They provide valuable feedback that can inform product development decisions, as well as help measure the success of those decisions

  • They can help guide marketing efforts by providing insights into which features or benefits are resonating with customers

There are three key categories of product metrics: Acquisition, retention, and referral. By tracking these product metrics, product teams can gain a comprehensive view of their product's performance and make data-driven decisions to improve it.

Acquisition

This measures the number of new users that have been acquired within a given time frame.

Acquisition indicates how successful marketing and advertising campaigns are in driving traffic and leads.

For example: Your product gained 1,000 new users within the past month due to a successful email marketing campaign.

Retention

This measures how many users or customers continue to use your product over time.

Retention indicates how satisfied customers are with your product and whether it meets their needs.

For example: Your product has a 70% retention rate, meaning that 70% of customers who try it continue to use it after a certain period.

Referral

This measures the number of new users or customers gained through word-of-mouth or recommendations from existing customers.

Referral indicates how much users like and trust your product enough to recommend it to others.

For example: Your product gained 200 new users in the past month through customer referrals.

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6 important product engagement metrics

1. User acquisition

User acquisition is the process of acquiring new users for a product or service. It is a critical metric that measures how successful a product is in reaching new audiences and expanding its user base.

Understanding user acquisition is important for product teams to develop effective marketing strategies and to identify the sources that bring in new users.

There are several user acquisition metrics that product teams can track, including:

  • Traffic: the amount of traffic a product generates through different channels such as social media, search engines, email, and referrals

  • Conversion rate: the percentage of visitors who complete a desired action, such as signing up or making a purchase

  • Cost per acquisition (CPA): the cost incurred to acquire a new user or customer. This metric is essential to determine the return on investment (ROI) of marketing campaigns.

  • Lifetime value (LTV): the total revenue a customer generates throughout their engagement with a product. LTV helps to determine the value of each user and the resources needed to acquire new users.

By analyzing user acquisition metrics, product teams can identify the most effective marketing channels and strategies. For example, if a product has a higher conversion rate from referral traffic, it might be worth investing more in referral marketing campaigns. Additionally, tracking user acquisition metrics helps product teams optimize their campaigns, test new strategies, and identify potential challenges.

Overall, user acquisition is a critical metric that helps product teams identify the potential of their product and grow their user base. By tracking user acquisition metrics and analyzing the data, teams can develop successful marketing campaigns, increase conversions, and ultimately drive revenue growth.

2. User retention

User retention is a key product metric that measures the ability of your product to retain users over time. Retention is essential for any product or service because it shows that users find value in what you're offering and are likely to continue using it. Churn rate and customer lifetime value factor into user retention.

To improve user retention, it's important to understand why users are leaving your product. Are there bugs or usability issues that need to be fixed? Are users not finding the value they expected? Understanding the root cause of churn can help you make targeted improvements to your product.

In summary, user retention is a critical product metric that measures the ability of your product to retain users over time. By tracking metrics such as churn rate and LTV, you can better understand user behavior and make targeted improvements to your product.

3. Churn rate

Churn rate is a product metric that affects user retention. Churn rate measures the percentage of customers who have stopped using your product over a given period. For subscription-based products, this could mean customers who have canceled their subscription, while for other products, it could mean customers who have stopped using the product altogether.

A high churn rate indicates customers are not finding value in your product and are opting to leave. This can be a red flag for product teams as it can result in lost revenue and decreased customer satisfaction.

To calculate churn rate, divide the number of customers who have stopped using your product by the total number of customers at the beginning of the period. For example, if you had 100 customers at the start of the month and 10 customers stopped using your product, your churn rate for that month would be 10%.

It's important to monitor churn rate regularly to identify any patterns or trends. If you notice a sudden increase in churn rate, it's essential to investigate and identify the root cause. This could be due to a variety of factors, such as:

  • A change in pricing

  • A new competitor entering the market

  • A lack of product updates

Reducing churn rate should be a priority for product teams, as it can improve customer retention and ultimately lead to increased revenue. Identifying the reasons for churn and addressing them can help retain customers and improve product offerings.

4. Customer lifetime value

Another product metric that factors into user retention is Customer Lifetime Value (CLV or CLTV), which is the estimated monetary value a customer will bring to a business over the entire duration of their relationship. In other words, CLV represents the amount of money a customer will spend on a company's products or services over time. A high CLTV means your users are loyal and likely to continue using your product over the long term.

Understanding the CLV of your customers is crucial for product teams because it allows them to make more informed decisions about marketing, sales, and customer retention strategies. By knowing the value of a customer, teams can more effectively allocate resources to acquire new customers or retain existing ones. To improve CLTV, focus on:

  • Providing excellent customer service

  • Offering personalized experiences

  • Continually improving the value of your product

To calculate CLV, consider factors like the average purchase value, frequency of purchases, customer retention rate, and estimated lifespan of a customer. Once you have these metrics, you can use a simple formula to calculate the CLV:

CLV = (Average Purchase Value x Number of Purchases per Year) x Average Customer Lifespan

For example, if a customer spends an average of $100 per purchase, makes three purchases per year, and has an estimated lifespan of five years, their CLV would be $1,500.

Knowing your CLV can also help you identify your most valuable customers, who are typically more likely to refer new business and provide valuable feedback. By understanding the customer journey and what drives customer satisfaction, teams can create a product experience that promotes loyalty and retention.

Overall, CLV is an important product metric that should be tracked and analyzed regularly. It can provide insights into customer behavior and help you make more informed decisions about product development, marketing, and sales strategies.

5. Revenue

Revenue is one of the most important product metrics for any business. Revenue measures the amount of money generated by the sale of a product or service. It is a critical indicator of the success of your business and can provide valuable insights into customer behavior.

Tracking revenue allows product teams to understand the profitability of their products and make data-driven decisions to optimize revenue growth. There are several ways to track revenue, such as tracking sales revenue or recurring revenue. The method you choose will depend on your business model.

Sales revenue is the revenue generated by one-time sales. It is calculated by multiplying the number of products sold by the price of each product. On the other hand, recurring revenue is the revenue generated by subscriptions or recurring services.

Analyzing revenue can help product teams identify opportunities for upselling or cross-selling, pricing optimization, or improving customer retention. By understanding how customers are generating revenue, product teams can adjust their strategies to maximize revenue growth and ultimately improve their bottom line.

Revenue metrics can also help product teams forecast future revenue and make strategic decisions for their product roadmaps. They provide valuable insights into customer behavior and can help identify opportunities to optimize revenue streams.

6. Net Promoter Score

Another important product metric to keep in mind is the Net Promoter Score (NPS). This is a customer loyalty metric that measures how likely your customers are to recommend your product to others. The NPS is calculated based on a simple question you ask your customers: "On a scale of 0 to 10, how likely are you to recommend our product to a friend or colleague?"

Based on their responses, customers are categorized into three groups:

  • Promoters (score of 9 or 10)

  • Passives (score of 7 or 8)

  • Detractors (score of 0 to 6)

The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

Why is the NPS important? It helps you understand how loyal your customers are and how likely they are to advocate your product. It's one thing to have a large customer base; it's another thing entirely to have a loyal customer base willing to promote your product to others. Changes in NPS can also help you identify any specific product issues that need to be addressed in real time.

To improve your NPS, focus on improving your customer experience. This means:

  • Listening to your customers

  • Understanding their pain points

  • Addressing their concerns

You can also incentivize your customers to promote your product by offering rewards or discounts for referrals.

Why do product metrics matter?

Product metrics play a crucial role in any product team's success. They provide valuable insights into how users are interacting with the product and allow teams to make informed decisions to improve the product's performance. Here are some reasons why product metrics matter:

Improved product performance

Product metrics provide real-time data about how users interact with the product. This allows teams to identify and fix any issues quickly and improve the overall performance of the product.

Better user experience

Product metrics also help teams understand how users are engaging with the product. This information can be used to create a better user experience, leading to increased user satisfaction and loyalty.

Identification of growth opportunities

Tracking product metrics allows teams to identify areas of growth and optimize their acquisition and retention strategies. This can lead to increased revenue and a larger user base.

Data-driven decisions

Product metrics provide teams with concrete data that can be used to make informed decisions about the product's future direction. This allows for more efficient resource allocation and a more effective product roadmap.

Overall, product metrics matter because they allow product teams to understand how their product is performing and make data-driven decisions to improve its success. Without product metrics, teams are flying blind, making decisions based on assumptions rather than real data. By tracking engagement, acquisition, and retention metrics, product teams can optimize their offerings for success.

What can you do with product metrics?

Now you know which product metrics matter most to your team, you may be wondering what you can do with this information. Here are three steps to take:

Step 1: Confirm

Start by verifying that the metrics you're tracking are accurate and reliable. Ensure you have a solid system in place for gathering data and that you're using the same methodology consistently.

Step 2: Communicate

Once you have a good understanding of your product metrics, communicate this information with your team. Share your findings with product managers, engineers, designers, and other stakeholders. This will help everyone understand how their work contributes to the company's overall success.

Step 3: Rally your troops

Finally, use your product metrics to motivate your team. Celebrate successes, and identify areas where you need to improve. Use the data to create a culture of accountability and continuous improvement. By tracking these metrics and working together to improve them, your team can make a measurable impact on your company's growth and success.

Conclusion

Product metrics are essential for any product team as they provide valuable insights into user behavior, product performance, and business success.

By tracking engagement, acquisition, and retention metrics, product teams can optimize their products, identify areas for improvement, and make data-driven decisions.

Ultimately, monitoring these metrics will help product teams achieve their goals and drive long-term success and growth.

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