These days the business landscape is very competitive and product managers play a key role in driving a business’s success because they serve as a bridge between different departments like sales, marketing, engineering, and customers. They are the ones who make sure the product meets market needs as well as aligns with the company’s goals. Product managers assess the impact of a strategy based on essential metrics indicating performance, customer satisfaction, and overall growth. Let's dive deep into the most important metrics every product manager should track:
Customer Acquisition Cost (CAC)
Customer acquisition cost is the amount that companies spend to get new customers. This amount is the compilation of all costs including marketing, sales, advertising promotions, and salaries. Keeping track of CAC is also important because it directly impacts the product’s profitability and if it is very high it makes the product unsustainable in the long run. Moreover, CAC can help assess the efficiency of marketing strategies. CAC is calculated by dividing total sales and marketing costs by the number of new customers acquired during a specific period.
Customer Lifetime Value (CLTV or LTV)
Customer Lifetime value is the total revenue a customer is expected to generate over the entire relationship with the product or service. It is a key metric for product managers because it determines the value of a customer over time which is important for long-term success. Moreover, LTV also helps in optimizing retention strategies and ensures that customer acquisition cost is justified. A higher LTV than CAC means the customer relationship is profitable and good. It can be calculated by multiplying the average purchase value, purchase frequency, and customer’s lifespan.
Churn Rate
Churn rate is the percentage of customers who stopped using your product with respect to the given time frame. If the churn rates are high it indicates dissatisfaction, poor product-market fit, or availability of better alternatives in the market while a high churn rate indicates more customer growth and impacts the revenue of a company directly. It can be calculated by dividing the number of customers lost during a period by the total number of customers at the beginning of that specific period.
Net Promoter Score (NPS)
Net promoter score is an extensively used metric because it measures the customer’s loyalty and satisfaction over time. It focuses on the simple question, “On a scale of ) 10, how likely are you to recommend this product to a friend or colleague?”. Based on their responses customers are characterized into three classes. Promoters are those who rate it as 9-10, Passives rate it as 7-8 while detractors are those who give your product rating below that. NPS is a powerful indicator of customer sentiment and is often a preferred method of review due to its simplicity. It can be calculated by subtracting the percentage of detractors from the percentage of promoters.
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)
Monthly recurring revenue and annual recurring revenue are critical metrics if we talk about subscription-based products. MMR represents the total revenue being generated in a month through active subscriptions while ARR is the annualized version of that specific figure. These metrics are important because they provide a clear picture of one's business's financial health and growth trajectory. Increasing MRR or ARR indicates the progress of the product. For calculation, MRR monthly subscription revenue is summed up and then multiplied by the 12 for ARR.
Active Users (DAU/MAU)In
Daily Active Users (DAU) and Monthly Active Users (MAU) tell you how many new users have viewed your product daily and every month. These metrics are especially applicable to digital products such as apps and software platforms. It. is essential because it indicates user involvement. Monitoring these metrics enables product managers to assess whether users find value in the product over time.
You will get an increasing level of DAU/MAU ratio when users are constantly reviewing your product, On the other hand decreasing level of DAU/MAU ratio indicates that your product is not that sticky. You can track it by monitoring the number of unique users interacting with your product on a daily and monthly basis.
Customer Satisfaction Score (CSAT)
CSAT is a metric that invites customers to rate your offering, typically by providing a rating on a 1 to 5 scale. It gives you an idea of how your product is being perceived by customers. It is important because its score indicates customer reviews. High CST tells that your product has gained good reviews which is great for customer retention, on the other hand, low CSAT scores show your product needs more improvements. You can evaluate the average score for customer feedback by using surveys.
Feature Adoption Rate
The feature adoption rate is responsible for measuring users' activity with the feature when a new feature is launched. It indicates the success of your product and its updates.
If users aren't shifting to new features, it could indicate poor communication, a lack of perceived value, or interface difficulty. Tracking feature adoption rate assists PMs in improving the product framework to ensure it matches users' needs. We can track it by dividing the number of users using the feature by the total number of users, then multiplying it by 100 to have the exact percentage.