A product manager must primarily concern themself with the ways real human beings interact with their products. It’s their responsibility to establish a minimum viable product and then uncover the feasible ways it can be improved. As with any good science, one must start with a hypothesis and then find ways to measure the performance of experiments against it.
Therein lies a challenge. Product managers are not, per se, data scientists or data experts. Yet, defining the right metrics and key performance indicators (KPIs) is a crucial part of product management. Product analytics make data more accessible to non-technical users, but even funnels, segments, and visualizations are incomplete stories without specific KPIs to measure progress. A KPI is a measurable value that can specifically highlight how the company achieves a business objective. High-level KPIs chart the overall performance of the business, while low-level KPIs can track the success of individual processes within specific teams like product, sales, and marketing.
Without specific measurements, there is no way to prove your product-focused hypothesis. Placing specific metrics and KPIs at the core of a data-driven culture within your organization can unite product teams with their colleagues in marketing, engineering, and sales to ensure everyone is moving in the same direction. But defining your metrics and KPIs isn’t easy. It must be done carefully to make sure you’re measuring the right things, that they align with company goals, and avoid over-indexing on singular goals which may cause harmful consequences. Fortunately, there are several KPIs that are relevant to nearly every product. Start with these three high-level KPIs, and use the insights you gather to identify more specific ones.
Discover more insights on metrics from this panel discussion ‘How to define the metrics that matter’
Your customer retention rate (CRR) represents the share of customers who remain users after a given period of time. Retention rate can be defined by a number of factors, like how many consecutive months the customer has used the product or how long a subscription lasts before cancellation.
Understanding how long you can successfully retain new customers while continuing to grow the user base is a critical calculation. Settling on an acceptable CRR for your business can be tricky, but the number ought to be quite high for a company’s most valuable customers, lest the instability in revenue projections spells doom. A SaaS Capital study showed that, for 700 software as a service (SaaS) companies, the CRR for customers spending less than $1,000 annually was as low as 89%, while customers with much larger contracts—$150,000 and above—were retained at a rate of 96%.
Ultimately, the product team should come to an agreement regarding the specific CRR targets, a period of time to cover, and what segments of the overall customer base are most critical to retain.
Across nearly every industry, products are competing for eyeballs and attention spans. There is a finite amount of time in a person’s day or week, and how much of that time they choose to spend within your application or site speaks volumes about the company’s offerings, the product design, and user experience (UX).
Session time—the amount of time the average user spends on the app—can provide valuable insights into the success or failure of specific marketing channels and the behavior of different segments of the user base. While a simple metric, it offers a high-level signal through the noise.
A low or decreasing session time can indicate a problem with the UX, a dearth of relevant content on the site or insufficient marketing toward the specific target audience. Unlike bounce rate, a well-designed homepage is no excuse for short session times. Think of Netflix or other streaming services. Their goal is to get users onto their app and keep them engaged. Even if you spend 30 minutes scrolling through menus before finally selecting a movie to watch, that is 30 minutes you’ve invested in Netflix’s library and 30 minutes you weren’t scrolling through the libraries of Hulu or Disney+.
Alas, keeping users on the site is not sufficient to keep them engaged. Using the previous example, while Netflix prefers to have you scrolling through their menus rather than through competitors, they would still rather you watch content, rate it, and share it with your friends. Within their user data, product leaders at the streaming service recognized the problem customers were having with finding something good to watch and began offering new features on the platform.
The Netflix Top 10 and the ‘Random’ button were innovations to drive engagement and prevent users from languishing at the front end of the product. User engagement requires a company to create interesting content and help customers navigate their way through the product to access that content and remain meaningfully engaged over time. Inevitably, users will churn or languish for long stretches within a conversion funnel, but tracking engagement closely provides product teams with an opportunity to examine when and why those users are dropping out. Engagement metrics can run the gamut from broad—how many interactions does the average user initiate within the app in a single session—to incredibly specific. Tracking a narrow engagement KPI like how many premium articles a customer reads during a free trial can provide the product team with insights for future customer conversion.
How to track metrics and incorporate insights
Tracking every metric mentioned along with dozens of other industry-specific metrics can overwhelm a small product team. Fear not.
Start with the method of data collection and storage—the data warehouse. Every interaction a user has with your site or app—from their first click through to multiple renewals—can be stored in a single location to create a single source of truth for the entire organization. With a product analytics platform connected directly to your company’s data warehouse, rigorous analysis of user behavior is easily accessible to product teams as well as their peers in marketing, sales, and engineering.
Ultimately, the goal of tracking product KPIs is to drive revenue by cementing smarter, data-driven business decisions within the company culture. Introducing this thought process doesn’t need to be complicated. Regardless of the size of your team, tracking product KPIs begins with a few basic steps. The first is analyzing or defining what you’re driving adoption of. Having this focus on what you’re measuring ensures the consistency of data collection. The second step is driving customers toward the adoption of those key elements within your product. Finally, validate your results, and repeat the process.
Creating a culture is a long-term process that starts with small steps. Eventually, you should see each department within an organization developing and tracking their own KPIs related to user behavior. But first focusing on high-level KPIs like bounce rate, CRR, and session time will benefit the entire company and set a path for continued iteration.
Discover more content on Product Management Metrics and KPIs. Read Jeremy’s previous article where he discusses how analytics are the key to optimizing the product roadmap.