13 Important Product Management Metrics: Definition and Importance
Data directs everything.
The house that you live in, the things that you use, and even the device you are reading this post on exist the way they do because of data.
Data tells you what you need to do next, especially when it comes to product management. Fortunately, collecting data today is easy. Set up some integrations and all your dashboards will light up. Every business does that or is capable of doing that with little investment.
However, focusing on the right metrics or key performance indicators (KPIs) makes all the difference.
But how do you determine which metrics or KPIs are important?
Or, more importantly, which of them are important according to seasoned product managers?
In this article, we look at 13 important product management KPIs and what experienced product managers say about them.
For an easier understanding of those metrics, we have further segmented those 13 KPIs into four broad types of metrics for product management. Let’s dive into each of these categories.
The business success of the SaaS product
The four KPIs below are often considered the North Star metrics in SaaS product management. This is because these metrics show whether a product or a feature is profitable for the company.
1. Monthly Recurring Revenue (MRR)
MRR is the standardized measure of what your business will make each month from all active subscriptions.
Formula: Average revenue per account x total accounts that month = MRR
You can multiply the MRR by 12 to get the annual revenue rate (ARR). The latter is usually monitored by upper management to guide the product’s vision. The table below highlights the differences between both:
Calculating MRR accurately helps you with the following:
- Tracking business performance: You can see the number of accounts and the size of the purchases they make from you.
- Budget forecasting: Salespeople can predict how much you can make which will help you see the big picture.
- Managing cash flow: You should make more than you spend in a month. MRR will help you manage your operational costs efficiently.
Chetan Manda, Senior Product Manager at Sprinklr agrees with us on the importance of this metric — “Yes, we care about MRR and ARR since these are good North Star metrics to signify the importance/contribution of your product in the overall business.”
However, as this metric focuses more on the business, Shishir Kumar, Associate Vice President of Product at Kotak Investment Advisors has a different viewpoint on whether product managers (PMs) should monitor it closely.
“No, revenue is accrued by monetizing the value that a customer extracts from the product. How the value is monetized is best decided by the business team. However, the PM can help in maximizing the monetization potential by creating and maintaining the value in the product,” he concludes.
The SaaS business model, in general, has subscription-based pricing for which MRR (and ARR) rely a lot on customer retention. Kairav Shah, Product Manager at Kickfurther explains how PMs should measure growth while keeping all of that in mind — “For a SaaS organization, one of the most important metrics is ARR and MRR for different subscription offerings for our customers. These two heavily rely on retention. Modern-day growth for SaaS companies does not stop at 'acquisition', it relies on retention.”
“Having visibility for MAU and DAU says a lot about the overall customer experience that an organization offers necessary for retention or upgrade and also acts as a testing instrument #user likely to be retained i.e. if a customer is actively engaged with your service offering, it's a low key indication of the overall product doing well,” adds Kairav.
Amaleki Lawlor, Product Manager at Chess.com agrees (his opinions are his own and do not reflect the views of Chess.com) — “SaaS businesses especially live and die by their ability to retain and engage their customers so it is important to uncover the actions in your business which increase engagement (DAUs/MAUs).”
2. Customer lifetime value (CLTV)
CLTV is the total amount of money your customer will spend on your products during the entire duration of the business relationship.
Formula: Average amount of a purchase x number of purchases/year x average length of customer relationship (in years) = CLTV
Calculating the CLTV will help you by:
- Revealing areas of improvement
- Understanding customer sentiment
- Maximizing ROI on each customer
- Guiding your product roadmap
Quadri Oshibotu, Senior Product Manager at Alcumus, and Founder of Product Hall explains that CLTV is important for both PMs and the business development team — “It definitely is! Not only is this a valuable metric for product managers, but for the business as a whole. CLTV is one of those data points that assist product managers in prioritizing various requests among their customer base.”
But he also says that having a customer with the highest CLTV doesn’t mean you should only prioritize their needs — “I am not saying that you should prioritize the customers with the highest CLTV. This is in line with the fact that as your product solves further problems for your customer base, the CLTV should increase.”
Understandably, measuring CLTV (or LTV) is difficult. Amaleki explains what you should focus on instead — “LTV is important as well, but I’ve found this to be a performance metric rather than an operational metric. Lifetime value takes a lifetime to measure and is tightly related to churn and retention rates, so I find that focusing on those two metrics can produce more specific and actionable developments.”
However, he clarifies that if you can measure it, you should continue to monitor it — “That said if you already have accurate LTV and you would like to increase it then revisiting the scope of your core problem might be a great next step. If you are happy with your churn and retention rates or have uncovered that your problem doesn’t have the scale required for business growth and LTV, you might look at adjusting the scope of your core problem. Playing with the scope of the problem you are solving can expand the solutions and value you are offering which has the potential to increase LTV.”
3. Customer acquisition cost (CAC)
CAC is the amount of money you spend to get a new customer.
Formula: Money spent on sales and marketing in a time period/ number of new customers gained within that time period
As a rule of thumb, CAC should be as low as possible. Here are some tips that will help you get started:
- Target the right audience: No matter how seasoned your marketing efforts are, you can’t attract people who don’t need your product. Even if they do, they will be dissatisfied and ditch.
- Keep improving your product: Be in touch with your customers and get their feedback. Extract actionable insights from it to improve your product.
- Test your marketing tactics first: Running campaigns can be heavy on your budget. Make sure that your efforts will get you desirable results by testing them.
4. Average revenue per user (ARPU)
ARPU is the money spent by an average user on your product in a given time period.
Formula: Total revenue generated in a time period/Number of users during that time period = ARPU
Here are some insights that you can get from this SaaS product management metric:
- Number of inactive users, on average.
- Your product’s most used features by the active users.
- Ideal demographic for maximum profitability.
- The number of users needed to meet revenue targets.
User/customer engagement metrics
These metrics will let you know whether your customers are finding the value they were promised from your product. If these metrics need improvement, you need to see whether you are building the right product or targeting the right audience.
1. Daily average users (DAU)/monthly average users (MAU) ratio
This is one of the most important product management metrics. It tells you the proportion of monthly active users that use your product on a daily basis.
Formula: (Daily active users/monthly active users) x 100 = DAU/MAU % ratio
For example, a DAU/MAU ratio of 50% means your monthly active users use your product for 15 days in a month, on average.
Its importance resonates with product managers across the board.
“There are two metrics that are important for a product team to track: monthly active users (MAU) and daily active users (DAU). MAU is the number of unique users who use your product each month. DAU is the number of unique users who use your product each day. Both MAU and DAU are important because they give a product team a sense of how often people are using your product, which is a leading indicator of user joy.”, explains Brian Sparker, Product Manager at You.com.
Brian further explains how you should interpret the changes in the DAU/MAU ratio:
“If you see that MAU is increasing but DAUs remain flat, that means people are using your product less frequently. This could be an indication that there's something wrong with the product or that people aren't finding it useful. On the other hand, if both MAUs and DAUs are increasing, that's a good sign! It means people are using your product more often and finding it valuable. Tracking these metrics can help you identify issues with your product early on so you can address them quickly.”
Quadri agrees with that point — “Having a large number of downloads sounds nice, but if users are not returning to your product on a recurring basis then what value is your product providing? DAU and MAU help you measure retention, which gives you an indication of whether you’re consistently providing value to your user base.”
The utility of this metric is more than just gauging the business's health.
“They also give you a way to measure whether changes or new features you've implemented have had an impact on how often people use your product - if usage goes up after implementing a change, then great! You know you're heading in the right direction, increasing user joy,” emphasizes Brian.
DAU and MAU also reflect the overall customer experience and are great metrics to monitor to validate new features. To reiterate Kairav’s take on this, PMs should keep a close eye on these metrics — “Having visibility for MAU and DAU says a lot about the overall customer experience that an organization offers necessary for retention or upgrade and also acts as a testing instrument showing the likelihood of retention i.e. if a customer is actively engaged with your service offering, it's a low key indication of the overall product doing well.”
However, you should be careful while considering this product management KPI for your business. For instance, products like Uber and Airbnb are used occasionally in a year, but that doesn’t mean they are losing customers.
Quadri emphasizes that you should consider the uniqueness of your business and the industry you are in while drawing insights from DAU and MAU — “These are important product metrics, however, their level of importance does depend on the product, company, and industry.”
2. Retention rate
Retention rate is the percentage of users who keep using your product over a time period. A high retention rate signifies that your customers are getting value from your product consistently.
Formula: (Number of active users at the end of a time period/Total number of active users at the beginning of the time period) x 100 = Retention rate
You should calculate retention rates for different time periods. Most product managers analyze weekly, monthly, and quarterly retention rates.
Although churn and retention rates depend on a variety of factors, they are still important metrics for product managers.
Shishir explains why it should matter to PMs, “Yes it does. As a PM, I need to create value for the customers. Why do customers leave the product? When they don't derive any value from the product. So it's a metric for a PM.”
However, he further clarifies that it is not a North Star metric — “It cannot be a North Star metric for sure as there are many indirect factors contributing to churn but an essential metric nonetheless.”
Amaleki highlights that it is one of the crucial KPIs as it highlights overall product success — “Yes, I think churn and customer retention rates matter for product success. These two signals can indicate whether or not you are solving a valued problem. The value of a problem can be measured by how frequently your customers experience it, and how painful this problem is when they need to solve it.”
He further advises product managers to stay in touch with their customers to know the causes behind churn or retention — “It is important to understand your churn and retention rates deeply by talking with churned and active customers directly, setting up and using product analytics, and developing a strong testing culture that values low cycle times if your churn and retention are not where you would like.”
Remember the Airbnb and Uber example from the previous section? Amaleki advises keeping the nature of your product in mind when drawing insights from churn or retention rates.
“Baseline churn and retention rates can look very different for different businesses. A business whose core problem is very infrequent for its customers might have low retention rates. However, because the problem is very painful for their customers, it is valuable, and they can charge enough to support the low retention through to the next sale. I’ve seen this in SaaS businesses who aim to improve the processes that support long-term asset purchases like property, vehicles, and machinery.”, he concludes.
3. Cohort retention
Cohort refers to a group of people with certain common characteristics. Cohort retention is the analysis where you club a section of your customers to study how engaged they are with your brand.
Its formula is the same as the one for retention rate but is applied separately for each segment of users. This metric in product management helps you identify your most valued customers.
Furthermore, you can identify the groups of customers with lower retention rates and take steps to improve that. That’s exactly how Jared Arrington, Senior Product Manager at Squarespace uses it — “I use cohort retention to identify retention trends.”
The KPIs for product management for measuring product or feature popularity don't have straightforward formulas. Instead, they are monitored with the help of analytics tools that measure product management KPIs and metrics.
Tools such as Mixpanel and Google Data Studio are quite handy in tracking these.
1. Session duration and frequency
Session duration is the time spent by an average user on your app in one go. Session frequency is the number of times they reach out to your product in a given time period.
Always aim to continually improve these two key product management performance metrics.
While analyzing user data, you should compare the session duration frequency with different cohorts of customers, existing and churned. This will help you discover patterns and take preemptive actions to improve customer retention.
2. User actions per session
To ensure a metrics-driven product management process, you need to know which feature is better and by how much. Tracking the number of user actions per session will tell you about your most valuable feature for that cohort.
This is a useful metric when you are rolling out new features. You can immediately test your theories and plan the next steps in product management.
3. Feature Fit Index (FFI)
This is one of the best product management metrics for developers to understand customer sentiment regarding a new feature of the product. It is essentially the percentage of people who will be disappointed if a feature is killed from the product.
Formula: users who would be disappointed if the feature were removed / total number of respondents = FFI score
Usually, this feedback is captured after a few weeks after a feature is released so that the customers will have enough time to understand it. This increases the percentage of meaningful feedback.
Customer satisfaction is paramount in retaining your customers and gaining more users through word-of-mouth marketing. The three key metrics for product management that help you track it are listed below.
1. Net promoter score (NPS)
NPS is a product management success metric that tells you the likelihood your customers will recommend your product to someone else. It lets you know about your customer’s satisfaction level while helping you predict business growth.
You can use the graphic below to calculate the NPS for your brand:
2. Customer satisfaction score (CSAT)
The CSAT measures how happy your customers are with each purchase and/or interaction with your business. It is a crucial success metric for product management as it considers both your product and your approach toward each customer interaction.
Formula: ( Positive responses/total responses ) x 100 = CSAT score %
The challenge with NPS and CSAT scores is that they take some time to come back. This can be difficult for certain product managers where time is of the essence.
As a product manager of a product that competes against Google, Brian explains, “No, we don't track NPS or CSAT of our product because these are lagging indicators of user joy. Yes, they are important. For some businesses, they are crucial. However, You.com is a hypergrowth startup that is laser-focused on creating a search platform that rivals Google, so we don't have the luxury of time. We innovate faster than it takes for a reasonable amount of time for an NPS or CSAT survey to come back. “
One solution is to take the inputs of the customer success team directly, as Kairav does — “We don't have a score we are tracking and monitoring for now for overall customer experience but we are in process of using one based on our customer success team feedback. What we do now is just send a survey where the customer can share their experience post using our service for the first. This helps the product team to have a better understanding of what's working and what's not working.”
3. Number of support tickets
As the name suggests, this metric considers the number of support tickets raised by your customers in a given time. For better analysis, you should segment by the nature of the queries or the severity of the issue in the ticket.
This will help you improve the usability of your product. For example, let’s say there are many tickets asking how one can update their account details. This signifies that you should either make that prominent in your app or create an onboarding tour to let the customers know.
KPIs in product management makes the process more data-driven, hence accurate. There are four kinds of key product management metrics:
- For tracking business success: MRR, CLTV, CAC, and ARPU.
- For monitoring customer engagement: DAU/MAU, retention rate, and cohort retention.
- For assessing a product or feature popularity: Session duration and frequency, user actions per session, and FFI.
- For measuring customer satisfaction: NPS, CSAT, and the number of support tickets.
All the different types of product management KPIs explained above pose an important question...
Which product management metric is important for you?
A crucial thing to remember here is that not all product management metrics will be relevant to your product.
Jared says that it is difficult to choose the important metrics without learning more about the product — “Not quite sure without context I could give a singular metric that would apply to all SaaS product managers. However, I strongly recommend all SaaS PMs are able to identify leading indicators of product success that ladder into key metrics.”
Quadri agrees but also highlights the point that some metrics are more important than others — “There is no one size fits all for all products and teams however there are some metrics that I think are more important than others, especially for SaaS products. MRR, DAU, and MAU for example are important however other metrics should be considered as well. Metrics related to acquisition, activation, retention, feature usage, and session lengths.”
He puts a pin on it by advising PMs to focus on quality over quantity — “There are a plethora of metrics that can be tracked, the key thing here is to ensure that you are tracking the right customer and user activities to inform how your product(s) are being used and guide your next steps.”
Shishir puts it aptly when we asked him what metrics are the most important, “It depends on the industry where the product is operating. For a B2C product, I would eat and sleep these metrics:
- Conversion rate of all user journeys - L0
- Success rate on user level - L1
- Success rate on transaction level - L1
- System uptime and median TAT
- Security and Compliance adherence”
The above list of product management metrics will help you gain actionable insights on your product’s performance and opportunities for improvement. However, it can be challenging to keep a collaborative eye on all of them at all times.
That’s where Zeda.io comes in.
Zeda.io is a super app for product management teams that will help you track all of the above metrics by pulling data from various sources through integrations. Its customizable dashboards will help you stay on top of all trends within minutes.
- What are product management metrics?
Product management metrics are parameters that show the health of a business.
- What are the KPI metrics for product management?
KPI metrics refer to the crucial and must-to-track parameters of a product that could tell you about its business performance and growth potential.
- What are the success metrics in product management?
Success metrics help measure and forecast the success of a product. For example, ARR and customer retention rate can be considered as success metrics in product management.
- What are some KPIs for product management?
MRR, ARPU, session duration, retention rate, and NPS are some of the crucial product management metrics to track.
- What are the best KPIs for product management?
It depends on what you want to find out. For example, if you are interested in knowing how satisfied your customers are, you should start with NPS and CSAT. Similarly, MRR and ARPU are great at revealing business value.
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