Top metrics and KPIs to turn your digital product into a success
Updated: Mar 5, 2021
So you’re working on a digital product. You think it’s performing well, but how can you measure whether it's successful? Collecting data is the easy part. Gaining insight from the data is hard.
Using the approach below will help you answer which metrics/KPIs to capture, what insights they reveal and how to make your digital product a success.
1. Understand the core user’s needs/problems
All digital products should be trying to meet a core customer’s unmet need or solve their problem. So how will your product make your customer’s life better?
Will it save them time?
Will it save them money?
Is it less complex than the competition?
Does your product remove frustration?
Does it surprise/delight/entertain your customers?
If you’re unclear on what your product is trying to achieve and why then you should get clarity on this and keep it front and centre on everything you do. Understanding your product’s customer mission is the first step to understanding what you should measure.
2. Understand your company’s goal
What’s important to your company? Is it growth? Is it increasing revenue or profit? Perhaps it’s increasing efficiency or establishing a new brand. For some companies, a key goal will by insulating against the competition. Shareholders may demand a reduction in operating costs or diversification of products or services.
Hopefully, your company’s goal will be obvious to you, but in some companies product and tech teams may not be looped into this high-level strategy. And many large organisations are engaged in all of these activities at once.
Once you understand your company's goal, it's important to establish how your product can contribute towards it.
3. Select product metrics based on customer need and company goal
Now that you understand the context in which your product operates from both customer and company perspective, you can start to think about suitable product metrics and KPIs.
Product metrics and KPIs are usually more granular than company metrics, so Product Managers tend not to measure things like profit or revenue, instead they focus on the elements which can impact these higher-level metrics.
You should measure the success of existing parts of your product to understand the status quo. Then for all new feature ideas, you should articulate what problem you’re trying to solve, what changes in user behaviour this may drive and how you will measure this.
The metrics below have been broken down into different sections. By selecting metrics from each section you will get a holistic view of how your product is performing and what's needed to increase its success.
Metrics to measure the impact on revenue
Monthly Recurring Revenue (MRR) = MRR from the beginning of the month + MRR from new customers - MRR from lost customers. (It’s also possible to include revenue from upgrades/downgrades). What it tells you: MRR is an effective measure of the health of a business such as a subscription service. There may be seasonal trends to contend with, such as fewer subscribers over the summer holidays, so trends over time should be tracked.
Average Revenue per User (ARPU) = Monthly recurring revenue / total number of users. What it tells you: ARPU can highlight if you have too many free or low-paying users. A sudden drop could mean a competitor has entered the market. Many B2B products increase fees year on year to increase ARPU.
Customer Lifetime Value (CLTV) = Average revenue per user * Average customer lifetime. What it tells you: This can measure how effective customer retention is. It can inform whether to offer discounts in order to retain customers for longer.
Average order value (AOV) = gross sales/ number of customers. What it tells you: for e-commerce businesses the higher your AOV, the more efficient your logistics will be and the more profitable you'll be. Related metrics are units per transaction (UPT) and the percentage of returned items.
Metrics to measure adoption
Downloads = the number of times your app was downloaded in a given period of time. What it tells you: Are marketing/referrals working effectively? Are users finding your app? Is the product interesting enough to be downloaded?
New Customers = The number of customers who have joined in a period of time. What it tells you: If your focus is on growth this will be one of your most important metrics.
Page Views = the number of pages viewed by users. What it tells you: Which pages are most popular. Use it to identify trends and try to replicate success on other pages.
Customer Acquisition Cost (CAC) = sales & marketing spend / total no. of customers acquired in a given period of time. What it tells you: When combined with CLTV it tells you how much you should be spending on acquiring customers and whether you need a new acquisition strategy.
Metrics to measure the success of a task
Conversion = a valuable activity performed by a user, such as purchasing an item, setting up a profile, messaging another user etc. What it tells you: whether your product solves your user’s needs. A drop in conversion could indicate a bug or that a new competitor has entered the market. Conversion goals can be set up in Google Analytics.
Error rate = the percentage of errors per user/per session. What it tells you: Customers expect bug-free experiences, so striving to reduce the error rate removes unnecessary frustration from users. Track via app crash reporting tools or logs.
Bounce Rate = the percentage of users who visited only one page of a website or app and left. What it tells you: A page with a high bounce rate could indicate poor content or a poor user journey
Metrics to measure user engagement
Active User = the number of active users in a given time period. An active user is one who performs a valuable activity such as watching a video, reading an article, sending a message etc. Often referred to as daily active users (DAU) or monthly active users (MAU). What it tells you: An increase in active users over time will indicate you’re working on the right features and that you’re doing a good job at retaining customers.
Session Duration = the average time your users spend on your service. What it tells you: By looking at customers with low session duration you can identify weaknesses in your product and potential areas for improvement
Number of sessions per user = how often users return to your product in a period of time. What it tells you: The higher this number the more your users like your product. By segmenting users based on this metric and analysing user behaviour you can start to formulate plans to move users to a more engaged segment. Consider comparing short-term behaviour to long-term behaviour.
The Number of user actions per session. This could be measured by things such as plays, likes, shares etc. What it tells you: Which features a user is engaged with and which actions they performed. Use this metric when rolling out a new feature to see if it increases engagement. By tracking this for existing features it could highlight any unintended consequences of the new feature. By analysing the differences in user actions for different segments it may reveal the behaviours you need other users to adopt to prevent them from churning. It is particularly useful for A/B tests.
Recency, Frequency, Volume (RFV) = how recently a user visited your product, how many times they visited, and how many times they performed an action in a period of time. Give a score out of 5 for Recency, Frequency and Volume respectively and add them together to get an RFV score for each user. What it tells you: By segmenting users based on the score you can identify groups who may accept a price increase, groups who require habit building, or groups likely to churn.
Metrics to measure user retention
Customer retention rate (CRR) = (Customers at the end of a period – New customers) / Customers at the start of the period x 100. What it tells you: A positive trend indicates you’re doing well at retaining customers. A sudden drop may signal a new competitor has entered the market. One way to track this is via unique sign-ups and sign-ins.
Customer churn rate = Customers lost / Total customers. What it tells you: How satisfied your customers are. A sudden increase in churn could indicate that a price increase was too large or that there’s an issue with your product. Cross-check with qualitative data from your customer service team, app store rating etc. to help understand the cause.
Metrics to measure user happiness
Net Promoter Score (NPS) = % of promoters – % of detractors. What it tells you: how liked your product or brand are. Users rank your product from 0 to 10. Detractors score between 0-6. Neutrals 7-8. Promoters 9-10
Final thoughts on product metrics and KPIs
Measuring how your product performs is key to making it a success. Ensure you understand your user, company and product goals and work to align all three. Measuring metrics related to revenue, adoption, task success, engagement, retention and happiness will provide a holistic view of your product and provide the insights needed to succeed. Good luck!