Updated: September 12, 2023 - 8 min read
In the data-driven world of product management, metrics and Product KPIs are vital. They’re the oil that lubricates the engine of successful decision-making, shaping our strategies and underpinning our plans. But where should an aspiring product manager start? Let’s take a look at the key metrics and KPIs that every product manager should know and use.
Editorial note: This post is based on a talk by Zafeer Rais, Senior Product Manager at Zalando on metrics for product managers and contains additional insights and examples from the Product School team. You can watch the webinar in full below.
Why is data important for Product Managers?
Before diving into the metrics, here’s a quick reminder of the importance of data for product managers.
In short, data enables you to understand the needs and behaviors of your customers, identify opportunities for growth, troubleshoot potential issues, and predict trends. With proper data analysis, you can transform abstract numbers into real-world strategies, leading to improved product design, better user experiences, and, ultimately, increased business success.
Of course, nobody becomes a data whizz overnight, and there are plenty of tools to help you understand and fully leverage data, including Google Analytics, Amplitude, and Mixpanel. These tools form an integral part of a Product Manager’s toolbox and can help you to collect, track, analyze, and interpret a wealth of data about product usage, user behavior, market trends, and customer feedback.
Ultimately, data-driven product management leads to better product decisions – something every good product manager strives for.
Understanding Product KPIs vs Metrics
In product management, Key Performance Indicators (KPIs) and metrics are often used interchangeably, but they serve distinct purposes. KPIs are key indicators of performance over time, whereas metrics are measurements of specific activities or processes. For example, a company like Netflix may use metrics like return rate or Net Promoter Score (NPS) to measure a KPI: customer retention.
Another example is an eCommerce business that tracks website traffic. Website traffic is a metric that measures a specific activity: how many people are visiting the website. On the other hand, a KPI for the same business could be 'conversion rate'. This KPI measures the percentage of website visitors who complete a desired action (like making a purchase). Unlike the 'website traffic' metric, the 'conversion rate' KPI is more strategic. It indicates how well the eCommerce business is performing in terms of its primary goal: converting visitors into customers.
While every KPI is a metric, not every metric is a KPI. Now that the difference is clear, let’s explore some of the most important metrics and Product KPIs for product managers.
Essential KPIs and Metrics for Product Managers
Daily Active Users (DAU) and Monthly Active Users (MAU):
These metrics provide valuable insights into how often consumers use your product. DAU measures the number of unique users who engage with your product in a single day, while MAU tracks this activity over a month. These metrics help identify the level of engagement and adoption of your product.
Whether or not DAU and MAU are useful metrics for you will depend on how relevant they are to your business. You may find them useful indicators of success if your product is a social media or fitness tracker app that’s designed to be used daily. In contrast, tracking the same metrics for a ride-sharing service like Uber or vacation rental platform like Airbnb isn’t as valuable, as these types of products aren’t intended to be used daily.
The ratio of DAU to MAU gives us the stickiness of a product, showing how often users return to the product within a month. It's a measure of your product's ability to engage users over time. A stickiness of 20% is considered good, indicating that users engage with the product at least once every five days on average. Anything above that is excellent and shows a high level of user engagement.
Monthly Recurring Revenue (MRR)
This metric is a measure of the predictable revenue a business can expect to receive each month. MRR is an especially important indicator of financial health for subscription-based businesses like Amazon Prime, Spotify, or Netflix. However, using MRR alone may not provide a complete picture of a product's financial health, and it should be analyzed in conjunction with other financial metrics.
Customer Lifetime Value (CLTV)
CLTV estimates the total revenue a business can expect from a single customer account over its lifespan. This metric is crucial for understanding the financial value each customer brings and informs how much you should spend on acquiring new customers without running into losses.
For example, if you calculate that the CLTV for your B2B customers is higher than that of your B2C customers, you might decide to increase your product marketing budget to attract those B2B clients who bring in more revenue.
Customer Acquisition Cost (CAC):
CAC refers to the total cost of gaining a new customer, including marketing, sales, and other related costs. By comparing CAC with CLTV, businesses can ensure they're not overspending to acquire customers and can optimize their marketing strategies accordingly. An ideal CLTV/CAC ratio is 3:1, meaning that the revenue generated by a customer should be three times more than the cost of acquiring them.
Session Duration and Bounce Rate
Session duration is an average measure of the time users spend on your platform during a single session. Longer sessions typically indicate higher engagement levels.
Bounce rate, on the other hand, is the percentage of users who leave your platform after viewing only one page. For instance, if 40 out of 100 users drop off after visiting one page, the bounce rate is 40 percent. A high bounce rate could indicate potential issues with user experience, site design, or content relevance.
Customer Retention Rate (CRR)
CRR is the percentage of customers a business retains over a specific period. It's a key measure of a product's 'stickiness' and customer satisfaction. To calculate CRR, subtract the number of new customers acquired during a period from the total number of customers at the end of that period, divide that figure by the number of customers at the start of the period, and multiply by 100 to get a percentage.
This metric provides insights into customer loyalty and satisfaction and could be a leading KPI for businesses operating under a subscription model such as Netflix. A higher CRR usually means that customers are more satisfied with the product or service and that the company is successful in its customer retention strategies.
In contrast to CRR, churn rate measures the percentage of users or subscribers who stop using your product within a specific timeframe. Lower churn rates indicate higher customer satisfaction and vice versa.
Not all churn is bad though! For example, some dating apps are made to be deleted once they’ve served their purpose of helping users to find a partner. In fact, apps like Hinge actually market themselves with the slogan "the dating app designed to be deleted”. So once again, consider whether tracking this metric makes sense for your product.
Net Promoter Score (NPS)
NPS measures customer loyalty and satisfaction. Users are asked how likely they are to recommend the product to others on a scale of one to ten. Based on their responses, customers are categorized as Promoters (9-10), Passives (7-8), or Detractors (0-6).
Promoters are loyal product users who use the product actively and will recommend it to other potential customers. Passives like your product but are prone to moving to a competitor’s product if they feel it’s better, whereas detractors aren’t satisfied with the product and can actually bring negative publicity to your product.
Your NPS can lie between -100 (when you only have detractors and/or passives) to 100 when you have only promoters and/or passives). NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters and multiplying the result by 100.
To give you an idea of average Net Promoter Scores for popular brands, in 2018 Netflix had an NPS of 64, PayPal scored 63, Amazon 54, Google 53, and Apple 49.
North Star Metric
This key metric aligns with the company's vision and reflects the value the product delivers to customers. Your North Star is your product’s most important metric. For instance, Netflix's North Star Metric might be session duration, indicating user engagement and aligning with its goal of becoming the premier entertainment distribution service.
Harnessing the Power of Metrics
While it's important to track these metrics, what matters most is the application of the insights derived from them. As American writer Mark Twain put it
“Data is like garbage. You’d better know what you’re going to do with it before you collect it. – Mark Twain”
So define the metrics that are useful to your product and objectives, understand why you’re measuring them, and then put them to work. This will radically change the way you make decisions, upgrading them from opinion-driven to data-driven. When you fully harness the power of metrics, you transform yourself from a good product manager into a great one.
Learn more with Product School
If you’re looking to break into product management or want to excel in your current role, check out Product School’s Product Manager Certification (PMC). Designed and delivered by some of the industry's most accomplished Product Managers, our PMC course will arm you with the knowledge and hands-on experience you need to build products from the ground up and effectively lead Product teams.
Schedule a call with one of our Admissions Directors to find out more.
Updated: September 12, 2023