90% of startups fail, according to a study by Failory. And lack of product-market fit and bad marketing account for 56% of all failures: measuring the right product management metrics to prevent both is important to the success of your business.
Where should you start though? In this article, June gives an overview of the top SaaS metrics in product management used by successful startups, so that you can decide which ones to pick. We’ll also provide some visual examples we’ve taken from our templates. Let’s go 🚀
What Are Product Management Metrics?
A product management metric, or key performance indicator (KPI), measures your product management performance―how well your product does something and how well your product team works.
KPIs VS Vanity Metrics: KPI Mapping
SaaS product management includes the whole product lifecycle, from design and development to usage by a customer. This is why monitoring product health metrics can feel so overwhelming―there are just too many of them!
Finding the key metrics doesn’t have to be complex, though. You just need to map your current business goals to relevant metrics and call those key performance indicators. Anything else is a vanity metric and you shouldn’t bother spending time measuring those. Let’s illustrate this with some product KPI examples.
If your product is brand new, you’ll want to focus on reaching product-market fit. That’s your business goal. The corresponding metric is your retention rate, as you will later read.
If you’ve already reached product-market fit, your business goal might be to optimize your marketing return-on-investment. You’ll hence focus on decreasing your average customer acquisition costs instead and that will be your key performance indicator.
Why You Need Product Management KPIs
SaaS KPIs measure your product’s success. Without them, you have no clue about what’s going on and whether you should keep investing time in your venture or not. Having healthy product performance metrics is the only way to attract investors to scale your business because data doesn’t lie.
Product performance metrics also shape decisions. Making an excellent product is the goal of the product team, and your data tells you what works and what doesn’t. When you need to pick between two features to prioritize for the next development sprint, you look at your feature audit and see which features your users already love to assess which of the two features will be more successful.
Last but not least, agreeing on a common set of product KPIs allows collaboration between cross-functional teams. If marketing works on acquiring new users while the product team is fixing retention, your marketing investments won’t bear any fruit because your product is a leaky bucket. You want the whole company to align on a fixed set of success metrics for a product and look at the same reports to work together.
12+ Product Management Metrics To Bring Success
An effective product metrics framework divides the list into 4 types of product metrics:
- Business performance - general business metrics
- Product usage - how well users engage with the product
- Product development - how the product team works
- Product quality - how well the product operates
Business performance KPIs
1. Monthly Recurring Revenue (MRR)
Why it’s important - MRR tells you if you’re making any money, and a month-to-month MRR analysis tells you if you have any growth. Since startups are experiments in the search for a sustainable business model, you can’t get around measuring your MRR.
MRR is closely related to annual recurring revenue (ARR). Put simply, ARR is the yearly version of MRR. Comparing your MRR over recent months can tell you a lot about the current short-term trajectory of your company, whereas comparing ARR figures are more appropriate to your company’s long-term course. MRR and ARR are two very useful product management KPIs.
MRR is a vital metric for many SaaS businesses, and influences all product management decisions. A growing MRR is a composite of successful product iterations and a SaaS tool people love to use. In fact, many SaaS founders use their MRR numbers as a way to publicly show their revenue numbers and encourage other people to follow their entrepreneurial journey, similar to how Sabba Keynejad, cofounder of VEED, a video editing platform, does it here:
2. Retention rate
Why it’s important - Retention is one of the most important KPIs for new product development, and one of the only product launch KPIs you should care about: it tells you how, when and why users opt-out of your product. You can spend all the money you want on acquiring new users, but without retention―getting your users to keep using your product―you might as well throw away money down the drain.
How to measure it - Your retention rate is the percentage of customers who still actively use your product after starting to interact with it for a given time period. Say 20 users bought your app but only 5 didn’t cancel their subscription after a month, your retention rate is 25% for this month.
3. User Churn Rate
Why it’s important - You should know how many customers are leaving your service. You may think it’s just the opposite of your retention rate, although the exact measure isn’t exactly as you might expect.
How to measure it - Your churn rate is how many customers you lost in a given period divided by the number of customers you had at the start of said period.
In order to correctly quantify your churn rate, you need to benchmark the number against industry standards and your own historical average. Some SaaS businesses openly display their user churn rate data. For instance, email marketing software, Convertkit, has an average monthly churn rate of 3.4%.
4. Customer Lifetime Value (CLV)
Why it’s important - The average CLV describes how much revenue your customers can bring you over the next few years if they don’t churn. Knowing this information, you can segment your customers by CLV and prioritize those with the highest value to make product decisions with the highest returns: if one customer is worth $100 and another double that, you will obviously want to focus on finding more users like the latter.
How to measure it - You CLV it by dividing your Average Revenue Per Subscription by your Subscription Churn Rate. The average revenue per subscription is the division of your monthly recurring revenue (MRR) by your number of active subscriptions. Your churn rate is the number of churned subscriptions in the past month divided by the number of active subscriptions a month ago.
5. Customer Counts (mDAU)
Why it’s important - This one is pretty straightforward: the number of active customers your product possesses. For consumer products, your number of active users doesn’t correlate with business growth, so companies like Twitter decided to focus on their monetizable daily active users (mDAU) instead. If the customer count doesn’t increase, you know your product isn’t growing, and a product that doesn’t grow is dying.
How to measure it - Just count your number of active subscriptions.
Why it’s important - If people just sign up to your product without using it, your retention is no good and the reason is clear: you have an onboarding problem. Measuring your time-to-activation makes sure you find the fastest way to get your customers to stick around.
How to measure it - Activation is the rate at which new users turn into active users. You measure it by counting how many new users performed a meaningful action in your product―the click of a button, the use of a specific feature, etc.
7. Customer Acquisition Cost (CAC)
Why it’s important - CAC helps you figure out how much you can afford to invest in an acquisition campaign. If your average CAC is $10 and your marketing budget is $1000, you can expect to acquire 100 new customers. When you divide your Customer Lifetime Value by your CAC, you obtain your CLV:CAC ratio, which allows you to compare the performance of your marketing with your products in the same industry as you are in. According to industry standards, growing SaaS businesses should aim for a CLV:CAC ratio of 3:1 or higher.
How to measure it - CAC stands for Customer Acquisition Cost and is calculated by dividing your marketing costs (MC) for a given campaign in whatever currency you use by the number of customers acquired (CA) during this campaign. If you spent $1000 in Google Ads and received 10 new customers, your average CAC for this marketing campaign is $100.
8. Burn Rate
Why it’s important - A burn rate indicates when you’ll run out of money and if you can afford new investments. A negative burn rate shows you’re saving money and can thus reinvest it. A positive burn rate tells you how long you have till you run out of cash.
How to measure it - Subtract your MRR by your monthly-recurring costs and voilà. If you earn $500 in MRR, spend $1000 in costs per month, and you raised $10,000 from your uncle, your burn rate is $500 and you will be out of business in 20 months if you don’t become profitable.
Product usage metrics
9. Daily Active Users (DAU)
Why it’s important - Your Daily Active Users (DAU) is an estimate of your product’s health. An increasing DAU is only good if it keeps increasing faster or if your DAU is also your customer count. A decreasing DAU indicates something is wrong with your acquisition and retention strategies since you’re not getting new users and the ones you already have do not stay around.
How to measure it - Your DAU depends on how you define an active user. If we consider a user as someone visiting your website, and an active user is a logged in user, then your DAU is the number of logged in users on a given day.
Why it’s important - Understanding how to convert monthly active users (MAU) to daily active users (DAU) shows how to improve user experience. The more time people spend in your app, the more revenues you are likely to generate.
This is why tracking your DAU/MAU ratio, AKA stickiness, is a good indicator of product/market fit when it makes sense for your product to be used on a daily basis. For SaaS product managers, having a DAU/MAU ratio of 9.4% or more puts you in the top 50% of all SaaS products. If your DAU/MAU is above 28.7%, you are among the top 10%. This is an important product manager KPI. Other related product manager KPIs are DAU/WAU and WAU/MAU. For clarity, WAU refers to weekly active users.
How to measure it - You calculate your MAU like you calculate your DAU, but over a period of a month. You then divide your DAU by your MAU.
11. Feature adoption
Why it’s important - Feature adoption tells you how many people use a given feature, so you know if it needs some more development work or needs to be removed entirely to avoid product bloat.
How to measure it - Feature adoption is the number of users who triggered a feature divided by the total number of users. If 50 persons clicked on your Import button out of 100 users, your feature adoption rate for the import feature is 50%.
12. Conversion rates
Why it’s important - Conversion rates measure the efficiency of your product funnels. For example, how you manage to turn a trial user into a paying customer. Poor conversion rates indicate pain points in your user journey that need fixing.
How to measure it - Your conversion rate is the number of people who have done an action divided by the total number of people who have visited the page. If 30 people read your pricing page and 15 end up subscribing to a free trial, your conversion rate is 50%. The higher the better.
Product development KPIs
46% of team leaders declare meeting project deadlines as their main problem: metrics for product development make sure things get done on time and on budget by making workflows more predictable. Two of such product owner KPIs include on-time delivery and team velocity and are generally classed among the top 10 product development metrics.
On-time delivery (OTD) measures how many product backlog items were delivered out of all the planned items for a given sprint. If your development sprint lasts a week, and your team planned 5 user stories but only 3 were delivered, your OTD is 60%. Ideally, you want the product team to estimate the duration of backlog items to obtain a delivery rate close to 100%. The better you become at planning, the less likely you are to endanger the product.
Similar to OTD, Team Velocity is a metric used in agile project management to assess the performance of product teams. The higher the team velocity, the more backlog items the team can process in the span of a sprint. To calculate Team Velocity, you assign points to backlog items that reflect their difficulty (1 is an easy task, 10 is an order of magnitude harder for example) and sum the points of all completed tasks at the end of the sprint. The main purpose of this metric is to make it easier to plan longer development cycles knowing what your team can chew without burning out: if marketing asks you to release a complex bug fix by a certain deadline, your Team Velocity indicates how to break down the bug fix into manageable tasks and how to prioritize other tasks to meet the deadline.
Using a product development metrics dashboard can help you make sense of your product development KPIs and ensure organization during this phase of the process.
Product quality KPIs
Product quality KPIs are complementary to production planning KPIs, as they reflect how well the product is built and how it’s supposed to behave. For example, the email client Superhuman makes it a rule to have every action in its user interface to take less than 100ms to complete―this is a product quality KPI.
You can find tens of such metrics in the form of non-functional requirements, but not all will prove to be relevant as KPIs. The number of Support Tickets and the product’s Test Coverage are two quality KPIs commonly used by customer support and testing teams respectively.
Additional product KPIs
Let’s take a look at some important product analysis metrics for your SaaS. Each of these product KPIs are valuable but not among the most critical metrics. They are a means of expanding on your primary KPIs and developing even more insights. Arguably, these metrics fall somewhere in between the most important KPIs and non-key metrics.
- Expansion Revenue - While MRR on its own covers your monthly recurring revenue of both existing and new customers, your expansion MRR (a type of expansion revenue) refers to extra revenue generated from existing customers. For instance, if a customer was to upgrade their subscription to a higher paying option, this would be an example of expansion revenue. Expansion revenue increases your CLV
- Net Promoter Score - This customer KPI measures how satisfied your customers are. You can obtain this score by asking customers how likely they are (on a scale of 0-10) to recommend your SaaS product to another person. However, the exact calculation to get your NPS is not simply the average customer satisfaction rating. Instead, it is measured as ‘percentage of promoters minus the percentage of detractors’. Promoters are classed as those who rate this question with a 9-10 whereas detractors would give a rating of between 0 and 6. Those who give a 7-8 rating are considered passive. Passive customers are likely happy with your service but not wowed enough to tell their friends about it.
- Time To Value- TTV is the duration between a customer signing up and when they gain the value they expected from your product. There are many different onboarding metrics closely tied to this KPI, such as retention rate, stickiness, and so on – many of which can be measured using June.
Analyzing insights from product management KPIs
KPIs can be incredibly useful in their own right, but through analysis, you can come to further conclusions that may not seem obvious at first. These conclusions can be found by considering the implications of various KPIs (and how they may impact one another) or by looking for potential correlations explaining different drivers of some of your KPIs.
Here are some of our tips for analyzing insights:
- Why are certain features so popular - A feature audit can tell you how popular and frequently used certain features are as well as how intensely they are used and how many people use them. With this data, other stats, and your own intuition, you could attempt to decipher why specific features are succeeding and why others are not. It could relate to their positioning on your site, their design, or even simply their inherent value.
- Think about demographics - Look at what your analysis tells you about different demographics. Parse together what demographics you appeal most to and what demographics have great potential if you were to reach them better.
- Consider whether you need to change your approaches - One broad consideration is whether you want to double down on prioritizing the demographics you are already successful with or attempt to reach out to new ones for which you believe there is great potential to succeed with. Of course, it’s entirely possible to take an approach somewhere in between.
- Figure out what’s holding you back - Whether it’s an issue with your web design, ineffective effort to communicate the advantages of your product, or failure to reach the correct audiences, it’s important that you determine where exactly you’re holding yourself back. If some users are slipping away, you need to ask yourself why. Moreover, you need to figure out what you can do to reel them back in, whether with encouragement or incentivization. Once you diagnose your drawbacks, whatever they may be, you can address them accordingly to increase revenue.
Use June For Your Product Management KPI Dashboard
June provides product management dashboard examples for retention, acquisition, activation, and many more relevant product analytics KPIs including metrics for product managers specifically.
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