How to Measure Product Success
You should always be able to report on the successes and failures of the product using your North Star metrics. Pick a handful that most accurately represent your company's goals, customer relationships, and business model.
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What is success for you? When do you feel that you succeeded in your job? Is it when you are promoted? Maybe when you are tasked with more important assignments and greater responsibilities? Or does success mean increased creativity and freedom to work on the job you enjoy? We all envision success differently, and we need some sort of North Star to gauge if what we're doing is getting us closer or further from it.
Business success is usually measured in monetary value. But, revenue alone is a third-rate guide to building a sustainable product that brings value to both your company and customers. How can a business find its North Star? What might it be?
How to Measure Product Success
Take a look at Hinge. This dating app launched as an alternative to the fast-swiping culture of Tinder and is designed to be deleted. In March 2022, for the National Day of Unplugging, they even gave out US $100 to couples who disabled their accounts and went on a date. For Hinge, the number of leaving users is a metric of success. It's called good churn — good because people leave after they found what they needed on the app.
Churn rate is traditionally viewed as the metric of customer dissatisfaction, or an appearance of a better cheaper proposition on the market. The more superficial dating apps usually look at the number of downloads or active users. They are not wrong, because every app, website, or software product has its own goals and an understanding of success. Which of course determines what metrics they will be using to track that success. But before going into the depths of product management terminology, let's quickly summarize what metrics are.
Metrics or Key Performance Indicators (KPIs)
KPIs are quantifiable data points, numbers that show how well the product is doing and if there are any hurdles on your path to the goal. Numbers about revenue trends, customer acquisition, or user engagement. These data will allows you to make informed business decisions.
Metrics are also like shortcuts into your audiences' minds. This gives you an aggregated view of how customers interact with the product. For example, at the beginning of 2020, the quarantine bubble noticed a dramatic 56% spike in video calls. People started chatting more and for longer times. In April, an average call lasted for 28 minutes. This drove the company to roll out even more virtual dating features. In July, Tinder caught up to the trend and introduced video calls as well. But as mentioned above, metrics are very individual and have a lot to do with how you see the product journey.
Product managers are very careful in choosing the right metrics that will determine everything from which updates to make, to what marketing strategy to use in promotion. This brings us to the main point. How do you determine your product metrics?
Determine Product Metrics
Let's talk about your goals. Goals are specific steps in your business strategy. Sometimes your goal is simply to grow and acquire more users. You need to know how effective your promotion channels are, where people are coming from, and how much it costs to attract them. Also, for your existing user base, you want to know how they engage with the product.
Hinge's overall mission is to help you escape the swiping cycle and find you a partner, so its goals are to find you better matches. Have you engaged in long conversations? And, of course, gone on a date? Translated into metrics, these goals help Hinge know how well their matching algorithm works and whether to introduce changes. Later they'd check on metrics to make sure the effort was worth it. Any product inherently needs to earn money somehow, and it needs to keep costs low. Besides, your stakeholders will look at financial indicators first and user satisfaction second.
Vine (Video sharing app) a culture-defining app that dominated the internet in the mid-2010s, was shut down in 2017 due to a lack of monetization. Attracting new customers, retaining them, and making sure that you grow are three fundamental goals with metrics attached to them. How do you know you succeed in each of these areas?
User Acquisition Metrics
The most basic acquisition metric is traffic. If we talk about apps, the number of user traffic is an excellent indicator that your marketing strategy is working or not. Suppose high traffic to an e-commerce, travel, or service provider site doesn't result in conversions — this usually means that users bounce, or leave the website after visiting just one page. You either aren't attracting the right customers, or you are providing a poor user experience. Alternatively, a high number of pages per session will tell you that your content or functionality is helpful engaging, and targeted correctly.
Customer Lifetime Value (CLV)
Customer lifetime value is the ultimate measure of customer experience. Multiplying an average value of the sale by the number of all transactions and the average customer lifetime. Say six months before an average customer stop using a product will give you an understanding of how much you should be investing in customer retention and acquisition.
For example, imagine you're a niche online bookstore. You spend US $100 on an advertising campaign on Facebook. That brings you around 200 new buyers. This means that it costs you 50 cents to attract one customer. Your average customer buys 10 books a year and has been using you for two years at least. Your profit margin on each book is 10%. So this amounts to around 40 dollars in profit that you generate from that one customer over their lifetime. This is your customer's lifetime value. That's a positive scenario that shows that your advertising efforts have been successful so far and it's worth investing in them more. But if all those 200 people bought just one book and never came back, you'd have about two dollars in profit from one of them and you'd have to run another campaign each month to stay afloat.
If your customer lifetime value is low you should work on retention by improving customer experience and satisfaction, better marketing, improved UX, and attractive discounts, all to make sure the customers you already attracted keep bringing value. This is where we turn to user engagement metrics.
User Engagement Metrics
User engagement shows how people choose to spend their time with your product. High engagement, such as leaving likes, scrolling, or writing comments, correlates with retention and loyalty. You will often see mobile apps, online games, and social networks boast their numbers of active users.
Active users are those who do some valuable actions on your website and app. For example, Facebook's daily active users amount to 1.82 billion people on average. This metric itself shows your growth, but for a broader picture, use a ratio of daily to monthly active users. It shows the stickiness of your product. A good ratio would be 20% at least. Insanely popular products like TikTok amount to 50%.
Churn is the metric most closely associated with customer satisfaction and engagement. Yet, as we already discussed, it's not sophisticated enough to help you learn why customers stay. Is it because they enjoy the product? Or because they can't seem to reach their initial goal? To know for sure, you must ask. You've probably answered these questions before. On a scale from 1 to 10, how likely are you to recommend this product to your friends? If your answer was lower than seven, that it's considered just as bad as one. This metric is called Net Promoter Score. The answers help product managers divide responders into three user groups.
If you have more promoters than detractors, that's pretty good. Also, if the number of promoters is twice the size of the number of detractors it's a huge success. Of course, the net promoter score isn't nuanced. Without leading questions, you have no idea why a person wouldn't recommend your product. This is why companies often use a customer satisfaction score.
Customer Satisfaction Score
A customer satisfaction score allows you to ask multiple questions and make them as wide or narrow as you want. From their satisfaction with using the whole product to the unique benefits of a specific feature. Ask it after the download to rank the onboarding or right before the subscription renewal to introduce improvements. When you want to make sure that your interface is easy to use, ask customers to rank how easy it was to find the information or complete the task.
How long people stay on those pages is equally important. If users spend more time messaging than swiping, Hinge considers this a success. But if we're talking about Tinder, where swiping is the central part of the experience, this requires some attention — especially when your revenue comes from ads and extra features available only on the main page. Regardless of how happy and involved your users are, the fate of the product and the company will still depend on whether it can sustain itself.
Software products, especially the ones operating on the subscription model, need to forecast how much revenue each user will generate in the long term. Financial metrics are how you know this. One such important metric is monthly recurring revenue.
MRR allows you to consider different groups of customers — the ones that joined this month, the ones that were downgraded, and those who were upgraded to another payment model. Also, of course, the ones who churned. By dividing MRR by the total number of users, you can calculate an average revenue per user. A metric for understanding which subscription tiers drive the most revenue is to learn how to optimize your pricing.
Netflix's ARPU numbers impact its regular price changes. Each year, Netflix shares streaming space with an increasing number of players. When subscribers add slowly and their ARPU doesn't increase, it means that users are underpaying for the service. Netflix experiments with raising a fee by a dollar or two in certain regions to balance the metric out.
Your North Star metrics should always be available to report on the product's successes and failures. Choose a few that best reflect your business model, relationships with customers, and goals. Don't be afraid to change them if your product evolves differently than expected. The system of metrics will inherently help you make decisions based on data, not guesswork — decisions that will result in a better product, bigger value, and success for all.
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