10 essential product management metrics explained
Georgina Guthrie
December 02, 2022
As a product manager, it’s not easy to know what to focus on when so many things are happening around you, but one of the best ways to cut through the noise is to focus on metrics.
By tracking the right product management metrics, you’ll see what’s working and what isn’t. You’ll be able to identify problems early and step in before it’s too late. And most importantly, you’ll be able to guide your team to success, no matter how many plates are spinning.
So what are the right metrics for a product manager? Here are ten essentials you need to have on your radar.
- Net Promoter Score (NPS)
- Customer churn
- Customer Lifetime Value (LTV)
- Customer Acquisition Costs (CAC)
- Revenue Per User (RPU)
- Engagement
- Retention
- Conversion rates
- Stickiness
- Task completion rate
Let’s look at each of these in a little more detail.
1. Net Promoter Score (NPS)
Customer satisfaction measures how happy your customers are with your product. There are a few ways to measure this, but one of the most popular is the Net Promoter Score (NPS).
You calculate it by asking customers how likely they are to recommend your product to a friend or colleague on a scale of 0 to 10. Customers who score your product 9 or 10 are considered “promoters,” while those who score it 7 or 8 are “passives.” Anything less than a 7 is considered a “detractor.”
How to measure NPS
One popular method is to use the “Net Promoter Score” questionnaire. You can send this simple survey to your customers via email or text.
The questionnaire consists of a single question:
“On a scale of 0 to 10, how likely are you to recommend our product to a friend or colleague?”
You can calculate your NPS by subtracting the percentage of detractors from the percentage of promoters. For example, if 20% of respondents are promoters and 10% are detractors, your NPS would be 10 (that’s 20 minus 10).
A score of -100 to 0 = 😟
0 to 30 = 🙂
30 to 70 = 😃
70 to 100 = 🤩
Why is NPS important?
NPS is a leading indicator of growth. Companies with high NPS scores tend to grow faster than companies with low NPS scores. Why? Because satisfied customers are more likely to buy more products, refer friends and family, and leave positive reviews.
How to improve your NPS
1. First, create a survey that is easy to use and quick to fill out.
2. Make sure the questions are relevant to your product.
3. Send the survey at the right time — after customers have had a chance to use your product, but before they’ve had a chance to forget about it.
4. Use the results to train staff and improve your product and customer service.
2. Customer Churn
Churn is the percentage of customers who stop using your product within a certain period, and it’s a leading indicator of whether your product is in trouble.
How do you measure customer churn?
You can measure customer churn in several ways, but the most common option is to calculate your churn rate. This is the percentage of customers who cancel their subscription or stop using your product within a certain period.
For example, if you have 100 customers and 10 cancel their subscriptions within the first month, your churn rate would be 10%.
According to Hubspot, an acceptable annual churn rate is around 2-8%. The lower, the better!
Why is customer churn important?
A study by Bain & Company reveals that increasing customer retention rates by 5% increases profits by a staggering 25% – 95%. It costs far more to acquire new customers than to keep existing ones.
Keeping your churn rate down means you’re making the most of the customers (and, therefore, budget) you have. It’s also a sign of product health: if your churn rate starts rising, take note.
How to reduce customer churn rate
1. Improve customer onboarding: ensure new users understand how to use your product and get the most out of it.
2. Increase engagement: keep customers coming back with new features, content, and updates.
3. Reduce prices: if customers leave because they think your product is too expensive, consider offering discounts or free trials.
4. Improve customer service: if customers are leaving because they’re unhappy with your customer service, make sure you’re responding to their concerns quickly and effectively.
3. Customer Lifetime Value (LTV)
Lifetime value is the total amount of money a customer spends with your company over the relationship. It’s important to track because it can give you an idea of how much you can afford to spend to acquire new customers.
How to measure LTV
There are multiple ways to approach LTV, but here’s a popular formula:
Customer Lifetime Value = Customer Value (CV) x Average Customer Lifespan (ACL)
Here are some more handy formulas to help you with the different components of this equation:
- Customer Value = Average Purchase Value (APV) x Average number of purchases
- To calculate APV, it’s total revenue over a given period (usually a year), divided by the number of purchases in that year.
- Average purchase frequency rate (APFR) = the number of purchases divided by the number of customers made during that period
- Customer value is as simple as multiplying the average purchase value by the average purchase frequency rate
- And the average customer lifespan (ACL) = the sum of customer lifespans divided by your total number of customers
Why is LTV important?
LTV helps you maximize the value of every customer relationship. It’s also an important metric to keep an eye on when optimizing your marketing and acquisition strategy. By understanding which customers are most valuable to your business, you can focus your efforts on acquiring more customers like them. Additionally, by understanding how much revenue each customer generates, you can better understand how much you should be willing to spend to acquire new customers.
How to increase customer lifetime value
1. Optimize your onboarding: first impressions matter. Make newcomers welcome and guide them to get the most out of your product or service.
2. Build trust: it’s more cost-effective to keep existing customers than source new ones, so treat the relationship with care. Like with relationships in real life, trust forms the bedrock of long-term happiness, so keep that strong, and your customers will stay. Communication, transparency, and integrity will do more good than viral videos and flash sales.
3. Upsell and cross-sell: increasing average order value is a smart way to get more out of each customer. Use data to offer customers curated deals and products they may be interested in purchasing.
4. Provide excellent customer service: happy customers are likelier to continue using your product and referring it to their friends. Great customer service also means making it easy for them to connect when they have a problem. Nothing turns people off like an automated phone line.
5. Listen to your customers: customers have lots of good advice on how you can improve. So listen and take their suggestions on board.
4. Customer Acquisition Costs (CAC)
Customer acquisition costs are the costs associated with acquiring new customers, including marketing expenses, sales commissions, and other business costs. It’s important to track because it can give you an idea of how efficient your customer acquisition strategy is.
How do you measure CAC?
There are several ways to do this, but calculating the cost per acquisition is the most common. This is the total amount of money you spend on customer acquisition divided by the number of new customers you acquire.
For example, if you spend $100 on marketing and acquire 10 new customers, your CAC would be $10.
There’s no clear-cut answer to a good score, but most businesses benchmark this figure against customer lifetime value. A CAC:LTV ratio of 1:3 is generally considered good, but it will vary wildly per business.
Why is CAC important?
Customer acquisition costs help you determine the cost of acquiring a single customer. This can help inform your stakeholders and investors, guide your marketing decisions, forecast finances, and help you with budget and resource allocations.
How to reduce customer acquisition costs
1. Improve your marketing: ensure your marketing efforts are targeted and effective.
2. Increase conversion rates: if more customers buy your product, you’ll need to spend less to acquire each one.
3. Offer discounts and free trials: sometimes, offering a discount or free trial can entice customers who wouldn’t have bought your product.
4. Boost your LTV: if existing customers keep returning, you can pull back on marketing for new ones.
5. Revenue per User (RPU)
Revenue per user is the revenue you make from each customer once you subtract the costs associated with acquiring them. As a metric, it can give you an idea of how much each customer is worth to your business.
How do you measure RPU?
There are a few different ways to calculate revenue per user, but the most common is simply to divide the total revenue by the number of users.
For example, if you have 100 customers who spend a total of $1000 with your company, your RPU would be $10.
Why is RPU important?
As with CAC, RPU can help guide your stakeholders and investors and inform your marketing decisions, resource planning, and budgeting. RPU is also increasingly important for subscription-based companies, like Netflix and SaaS providers, because it helps you understand growth patterns and pricing structures.
How to increase revenue per user
1. Upsell and cross-sell: offer additional products and services to your existing customers.
2. Increase prices: if customers are happy with your product, you may be able to raise prices without losing business. But use this sparingly, or it’ll negatively affect trust.
3. Refine your pricing structure: offering three different pricing options is a tried and tested technique.
4. Increase customer loyalty: keep customers returning with excellent customer service and valuable content.
6. Engagement
Engagement is a measure of how often customers use your product. It’s important to track because it can give you an idea of how satisfied they are with it. If engagement is low, churn is sure to rise. But if it’s high, referrals and a higher LTV will follow.
How to measure engagement
It’s an easy equation. Choose your group of customers, then divide the number of active users in a given period by the total number of users. This will show you how engaged your customers are over time.
Why is engagement important?
Engagement is a leading indicator of customer satisfaction and loyalty. Customers who are highly engaged with your product are more likely to be satisfied and to stick around longer. It’s also a good metric to show investors when you want to secure more resources. High engagement = a healthy product worthy of investment!
There are a few ways to increase engagement:
1. Improve usability: ensure that your product is easy to use and that customers can find what they’re looking for. User testing is a great way to determine how people interact with your product: the more feedback, the better.
2. Increase interaction: make sure that your product encourages customer interaction, whether it’s through social media, forums, or other features. And while we’re here, don’t underestimate the power of personalization. Adding someone’s name to a marketing email, followed by a curated list of promotions, makes all the difference.
3. Provide valuable content: give customers something worth coming back for, whether it’s news, tips, or exclusive content.
4. Share your brand story: customers love a brand with a mission they can get behind. It adds an emotional layer to the transaction, helping build engagement but also trust and loyalty.
7. Retention
Retention is a measure of how long customers continue to use your product. It’s important to track because it can give you an idea of whether customers are using your product and how satisfied they are with it.
How to measure retention rates
Measuring the retention rate is a four-step process.
- Work out how many customers you have at the end of a given period (this could be a month, quarter, or year).
- Subtract the number of new customers you’ve acquired over that time.
- Divide this by the number of customers you had at the beginning of that period.
- Then, multiply that by one hundred. And voila! You have your retention rate expressed as a percentage.
Why is retention important?
Retention is a significant indicator of customer satisfaction and loyalty. If you’re losing customers, it’s a sign things are off. But if they stay with you, you must be doing something right.
How to increase retention
- Improve your onboarding process: first impressions are everything. Not only does a good welcome help your customers hit the ground running when it comes to using your product or service, but it also creates a good impression which boosts loyalty and raises your chance of getting a good referral.
- Create a customer feedback loop: one of the best ways to retain customers is to ensure you regularly meet their needs. Make it a habit to check in and find out how you’re doing.
- Reward promoters — word-of-mouth reviews are one of the best ways to acquire new customers because shoppers trust online reviews almost as much as a recommendation from a friend.
- Reward loyalty: what’s with those businesses that only offer new customer discounts but jack the price up for their loyal customers? Don’t be one of those businesses.
- Optimize: continually improve your offering, from your products and services to your rewards program and customer service team. If you rest on your laurels, someone else will be quick to take your place!
- Personalize: isn’t it nice when you return to a shop, and the store clerk remembers your name and what you like? Why would you try the shop down the road when the experience here is just right? Make your shop into your customer’s favorite local.
8. Conversion rate
The conversion rate measures how many customers take the desired action, such as making a purchase or signing up for a service. It’s important to track because it can give you an idea of how effective your marketing and sales efforts are.
How to measure conversion rate
Here’s the simple formula:
Conversion rate = (number of conversions / total number of visitors) x 100.
This will give you a percentage. A good conversion rate depends on your business, industry, and goals, but here are some averages:
There are several ways to measure these things, each depending on your product, goals, and tools.
Here are three popular options:
1. Set up goals in Google Analytics: first, you must decide what actions you want customers to take. Then, you can set up goals in Google Analytics and track how many customers take those actions.
2. Use a conversion tracking pixel: if you’re running ads on Facebook or another platform, you can use a conversion tracking pixel to track how many customers who see your ad take the desired action.
3. A/B test your marketing and sales efforts: try different versions of your marketing and sales materials to see which ones are more effective at getting customers to take the desired action.
Why is conversion rate important?
Conversion rate tracking can help you optimize your marketing and sales efforts, get the most out of your existing customers, and gain insight into how well your product is doing. By tracking conversion rates over time, you can see if your efforts have a positive impact.
How to improve conversion rate
- Improve your website or app’s UX: if users can’t figure out how to use your product, they will not convert. Ensure your product is easy to use and the user experience is good (a UX audit can help you out here). This is the most critical part of improving your conversions.
- Use effective marketing strategies: use targeted campaigns to optimize your website for conversion and ensure the two are aligned.
- Offer a discount or incentive: sometimes, offering a discount or incentive can entice customers to convert.
- Make it easy to purchase: make sure the purchase process is easy, and there are no barriers to entry.
- Don’t neglect micro-conversions: the customer journey consists of many small steps, so don’t focus so much on the sale that you neglect these essential stages. A newsletter sign-up, setting up alerts, and following on Twitter are small yet significant wins.
9. Stickiness
Stickiness is a measure of how often customers return to your product. It’s important to track because it can give you an idea of how engaging and addictive your product is.
How to measure stickiness
To do this, there are two metrics you need to know: Daily Active Users (DAU) and Monthly Active Users (MAU).
The former (DAU) measures how many people interact with your product daily, which you can use to compare against previous days. The latter (MAU) shows you how many people interact with your product month by month. And stickiness is the ratio of the people who use your product over a month but daily. And here’s the formula for that:
Stickiness % = DAU/MAU
Say you have 1000 monthly users, 100 of whom use the product daily. That would give you a stickiness percentage of 10%. According to Sequoia Capital, 10-20% is average, with a handful of companies hitting 50%.
Why is stickiness important?
Stickiness gives you an idea of how engaging your product is. If customers keep returning, it’s a sign that they enjoy it. Additionally, if you pair this with a high retention rate, your customers will stick with your product over time.
Stickiness can also help you identify ‘power users’ (use a Cohort analysis to help with this), i.e., customers who keep coming back. These people are customers you need to reward; they’ll raise your NPS and have a high LTV. Studying them can also help you target your marketing to attract more of the same.
How to increase stickiness
1. Make it easy: make sure your product is easy to use and provides value to users. Run a UX audit to ensure your website/app is fully optimized, and keep working at it over time.
2. Keep users updated: tell them about new features, content, and updates.
3. Use data from engagement metrics: this improves your product’s design and user experience.
4. Offer discounts and coupons: this encourages customers to continue using your product.
10. Task completion rate (TCR)
Conversion rate refers to a funnel, e.g., a sales funnel, which comprises various steps. Task completion rate, on the other hand, measures how often customers complete specific tasks they set out to do in your product. It’s important to track because it can give you an idea of how particular elements work (or don’t!) on your app/website.
How to measure TCR
To measure it, you define a scenario with binary success criteria, then measure if your users fail or pass. If they fail, give them a 0. If they pass, give them a 1. You get your completion rate by dividing the number of users who successfully complete the task by the total number of people who attempted it. For example, if 9 out of 10 users complete a task successfully, the completion rate is 0.9 and is usually reported as 90%.
What counts as a reasonable rate depends on the product and industry, but 78% is average. Of course, if your product is being used in an emergency, you’ll need to get it up to 100%.
Why is TCR important?
TCR helps you optimize your product. If customers are having trouble completing specific tasks, you can make changes to improve the user experience. Additionally, if you’re A/B testing different versions of your product, TCR can help you determine which version is more effective.
How to increase task completion rate
1. Improve UX: make sure your product is easy to use and provides value to users. Run A/B tests, and keep an eye on warning signs like high bounce rate on specific pages (Google Analytics will show you this).
2. Share: keep users updated with new features, content, and updates, and explain how to use them. Consider setting up a chatbot to help troubleshoot or provide advice during a new rollout.
3. Use data: engagement metrics improve your product’s design and user experience.
4. Make it easy: design a straightforward user interface and offer assistance or customer support in case users get stuck.
How to choose which product management metrics to use
The best way to choose metrics is to think about your goals, then select the product management metrics that will help you best measure your progress.
Some common product management goals:
1. Increasing engagement: if your goal is to increase engagement, you should track monthly active users, time spent on the product, stickiness, and task completion rate.
2. Decreasing churn: if your goal is to decrease churn, you’ll want to track retention rate and customer lifetime value.
3. Increasing conversion: to improve conversions, you should look at customer churn, conversion rates, customer acquisition costs, and task completions.
4. Improving customer satisfaction: if your goal is happier customers, you’ll want to dig into your Net Promoter Score and retention rates.
No matter what your goals are, it’s important to choose product management metrics that are relevant and actionable. You don’t want to track a metric just for the sake of it — make sure it’s something you can use to improve your product, or you’ll end up drowning in numbers without much payoff.
Make things easy by using tools built for the job. Project management software, like Backlog, can help you track projects and release work on time. Diagramming tools, like Cacoo, are great for creating user journey flows and process improvement plans you can share with your team. Whatever collaborative tools you choose, ensure your entire team can access and contribute to them.
