You launched a SaaS company and you have some beta testers or early adopters for your new service. Now what? How do you go from product developer to thriving business owner with a successful product?
Start tracking important product metrics that reveal what you’re doing right and what needs to be fixed in your product strategy. Mapping out and keeping track of key metrics is a vital step for any product-led company.
What Are Product Metrics?
Product Metrics are the Key Performance Indicators (KPIs) for your product.
These meaningful metrics track product performance.
They give you insights into how well your new customer acquisition campaigns are performing, if customers are finding your product useful, what changes you and your product team need to make to your features, and so much more.
How do you know when to start tracking these metrics? You should be doing it from the first minute of your product launch. If you haven’t started yet and your product is live - now is the day to get started.
Product Metrics That You Should Measure
There are about a million product analytics data points you could be tracking but then you risk getting caught up in vanity metrics instead of key metrics.
To keep you focused on quality metrics, let’s walk through 11 product management KPIs you or your product manager can track in order to improve your business and drive higher profit. This guide will keep you on the path of focusing on the right metrics for long-term success.
Active Users is a good metric that tells you how many of the signups you receive are actively using your SaaS product. This is an especially important metric if you have a freemium product, but also important if you have a product that comes with a base subscription cost.
If you have a freemium product you may have 100,000 free users but if only 50,000 of them are active users you can only sell to 50,000 of them. That means you have a 50% chance of actually earning money from your user base.
You want your Active User percentage to be as high as possible so that you know: your product is enjoyed by the target audience, the users will stick around, and you can make money from them.
If you have a product that comes with a monthly subscription cost you also want to make sure your Active User percentage is high.
While you may be getting paid no matter what, the higher your Active User base the more chance you have to keep that user as a paying customer. If someone signs up for your product and decides it’s not worth using they are likely to cancel.
It’s important to do whatever it takes to make your product as user-friendly and valuable to users as possible to keep your Active User percentage up.
Think of this as an engagement metric similar to that on social media. The more engagement you get the more people are resonating with your posts. The more engagement you get in the form of product usage, the more valuable your product is.
The Actions product metric measures how many times customers are using key features. There will be certain actions in your product that should be used if the customer is in your target audience.
If you’re not seeing customers completing those actions you need to ask yourself why.
Is it because the product is hard to use? Do you need to add some info tips? Do you need to add a product features tour?
Is it because the people you’re signing up for your product aren’t in your target audience? Do you need to reach a different group of people?
Keep track of actions and use this metric to inform you about ways you can make your product or ad spend work better.
Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) represents what you’re paying in ad spend to onboard a new user. If you spend $500 in ad spend and that results in 5 new users then your customer acquisition cost is $100.
$500 ad spend / 5 new users = $100 spent per user
It’s really important to not jump to conclusions with your CPA on the very first day of running ads. Your CPA may fluctuate based on the day, quarter, or season.
For example, a lot of companies will sign on for new software and systems at the start or end of the quarter or the start or end of the year.
You may onboard 1000 new users in December and 100 new users in July. If you looked only at your CPA in December or only at your CPA in July you would have difficulty using that data to project how other months will go.
It’s important to run your ads over time and to constantly update your CPA based on the data coming in.
Also, keep in mind that CPA will be the highest when you launch a new ad campaign, and as that campaign optimizes your CPA should come down. That means you shouldn’t be scared off of running ads if the CPA seems impossibly high on day one.
Conversion Rate is the percentage of users who take the action that you want. You will likely track a few different conversion rates.
You’ll want to track the conversion rate of visitors to your site who go on to sign up for your product.
You’ll then want to track the conversion rate of users who go on to take key actions within your product that you know make a user sticky. This is your product adoption rate.
Finally, you’ll want to track the conversion rate for any upsells and cross-sells.
For example, let’s say your ads generate 100 visitors to your website and 10 of them go on to sign up for your product. Your conversion rate would be 10%.
100 visitors / 10 sign ups = 10% conversion rate for sign ups.
You can look up the average conversion rate in your industry for different actions, but ultimately you want to stay focused on your conversion rate and continuously try to improve it.
Revenue is how much money you’re bringing in from the sale of your products. It’s important to note that revenue is not the same as profit.
Revenue is simply the money that flows in. Profit is the money that flows in minus your expenses.
Customer Lifetime Value (LTV)
Customer lifetime value (LTV) is perhaps the most important metric when it comes to understanding whether your acquisition costs make sense or not.
When you first onboard a new customer you generate your CPA based on your ad cost divided by your conversions.
Ex: I spent $100 on ads and I generated 5 new users. That means my CPA is $20 per user.
$100 ad spend / 20 users = $5 spent to acquire each user.
Then if each user goes on to stick around as a customer for 1 month, and your cost per month is $50 your ROI is $30 per user.
$50 subscription - $20 acquisition cost = $30 ROI.
That’s not the end of the road though. If each of those users stays for 2 months then your ROI more than doubles.
$50 subscription x 2 months = $100 in revenue
$100 revenue - $20 acquisition cost = $80 ROI
Now you see your ROI has jumped from $30 in the first month to $80 in the second month. Every month after that your ROI will continue increasing. This represents your lifetime value for a customer.
If your average customer subscribes for 12 months then your average LTV is $580.
$50 subscription x 12 months = $600 revenue
$600 revenue - $20 acquisition cost = $580 lifetime value
That means you can project that every time you spend $20 on a user you can anticipate $580 in revenue. Knowing this information allows you to forecast quarterly or annual revenue which helps inform business decisions you want to make.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue or MRR is how much you can expect to make each month based on how many users you had active the previous month that won’t cancel. This product metric is closely tied to your LTV.
Let’s say you have 500 monthly active users on average and each user is paying $50 per month. Then your MRR would be $25,000.
500 active users x $50 revenue per month per user = $25,000
The more user-friendly your product is, and the more value it provides, the more sticky your customers will be.
Customers that stick around month after month will make your expected MRR more predictable. This is important because hiring decisions, business expansion, and so on depend on predictable, dependable, repeatable MRR.
Churn Rate represents the number of users who stop using your product. It’s common to calculate the Churn Rate percentage on a monthly, quarterly, and annual basis.
For example, if you have 500 users in January and 400 users in February then you lost 100 users for a customer churn rate of 20% because 100 is 20% of 500.
Knowing your Churn Rate is just as important as knowing your LTV. They really go hand-in-hand.
Your LTV lets you know how much you can expect to earn when onboarding a cohort of users, and your Churn Rate lets you predict how many users you can expect to lose over time.
Customer Retention represents the percentage of customers that you keep through re-subscription. You might keep track of this product metric on a monthly, quarterly, and annual basis.
The goal is to have this percentage as high as possible because each customer you retain means one less customer you have to pay for to replace a customer that left.
Let’s say you start the year in January with 500 customers. If you did zero product marketing and ended the year with 400 customers re-subscribing then your customer retention rate is 80%.
If you did product marketing throughout the year, which you likely did, you would need to look at all of your data sets and see how many of those original customers you kept to calculate your true customer retention rate.
Referrals are gold. These are the new users you acquire through word-of-mouth from your existing customers. They are gold because you don’t have to spend anything to acquire them except for providing good service to your existing customer base.
You can incentivize your customers to send you referrals by giving them something in return. For example, Dropbox gave their early adopters a lot of free space for referring a friend. You can offer free features, upgrades, money back, a percentage of the sale, or even just a free t-shirt or mug.
The incentives are usually just nice-to-haves though to increase your loyalty with your best customers. Those people would likely refer you anyway because your product offers them so much value.
Your product manager can work with your marketing manager to put together a killer referral program.
Net Promoter Score (NPS)
Your Net Promoter Score is essentially your customer satisfaction metric. To obtain your NPS you would send out a single survey question to your customers and ask them to rate you on a scale of 1 to 10.
Those who score 9 or above are your promoters. They are your best customers who value your product and love using it.
Customers who score in the 7 to 8 range are passives. They like your product but it’s possible a competitor could come along and snatch them away.
Users who score 0 to 6 are categorized as detractors. These are people who are not satisfied with your product and are letting you know. You should reach out to these people to see what you can do to improve the user experience for these individuals.
If a small percentage of users fall into the detractor category you’re in good shape. It could be that those people signed up for your service and decided ultimately it didn’t work for their needs. Maybe your product marketing messaging could be clearer.
If a large percentage of users fall into the detractor category you need to deep dive into why your product is missing the mark and make changes as quickly as possible.
This is an important process metric; meaning it will help you improve your customer onboarding and customer experience processes.
Time to Get Started
Now that you know the eleven most important product success metrics to track for your business, it’s time to get started.
You or your product analytics manager will want to create a spreadsheet or report that you update as soon as possible with these actionable metrics today, and then track your progress over the next month, quarter, and year.
This will help you and your team be much more data-driven in your decision making and will ensure your product roadmap better reflects feedback from your users.
The goal is to watch your business metrics continuously move in a positive direction to make your product more user-friendly, more well-loved by your target audience, and more profitable for you.
For more information about this, you or your product manager can check out these product analytics books.