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How do companies keep track of their growth and the success of their products? The answer lies in the use of product management performance metrics. Read on to find out more.
Introduction
To establish and expand in today’s competitive business world, a company needs to rely on an effective product management system.
But how exactly can a company measure the success of its product management?
The answer lies in the use of product management performance metrics.
Product management performance metrics refer to tools that businesses can utilize to track their growth and determine product success.
Product management focuses on conceptualizing, developing, and launching a product or service that is designed to be in alignment with customer expectations.
Product management performance metrics are used to gauge, either directly, or indirectly, the popularity of that product or service with both new and existing customers.
For a company to ensure the effectiveness of its product management, it needs to choose the right metrics.
What are product management performance metrics and how are they different from product management KPIs?
Product management performance metrics are a way for businesses to measure the effectiveness of their product management system. They are also used to ascertain the success of their products.
Product management performance metrics are a source of quantitative data used by companies to make sound financial and analytical decisions based on the measure of customer response to a product.
When discussing product management performance metrics, it is important to distinguish them from key performance indicators, or KPIs.
Product management performance metrics help gauge the effectiveness of a company’s entire product management system and are used to set up the general goals of a business, such as making products that appeal to a target customer base.
In contrast, key performance indicators are considered a type of metric that represents a specific business goal.
In short, product management metrics help business owners determine the overall success of their products, while KPIs measure the company’s growth in a particular aspect of their business.
Why are product management performance metrics important?
Product management performance metrics are important for the following reasons:.
1. Product management performance metrics help companies make better business decisions as they provide a real time look into a company’s performance.
Monitoring the right metrics helps companies gather accurate real time data regarding how their products perform in the market.
Keeping track of these metrics is essential for companies to determine what customers like about their products or services and what areas have room for growth.
Gaining insight into customers’ real time preferences towards their products is one of the most effective ways for business owners to work on developing products that do well in the marketplace, especially given how quickly consumer tastes and preferences can change in the modern market.
Since metrics provide companies with information on how customers engage with a product, how satisfied customers are with a product, and which features are most popular, among other things, product development, design, and marketing teams can ultimately use this data to discern what drives people to buy their products.
As this data provides a real time look at customer behavior,companies can identify the key features they need to prioritize to maximize the market success of their products, leading firms to make more effective, data-driven decisions.
2. Product management performance metrics help streamline the production process by allowing for competitive comparison.
Incorporating the use of the right product management performance metrics is essential for companies that want to streamline and organize their product development process.
With the right product management performance metric strategy, product managers can hone in on the specific metrics that drive their goals.This reduces guesswork regarding the growth of their products.
When companies know what aspects of the product development process require more resources, they can communicate more effectively with stakeholders and executives to secure investment. They can present a clear production roadmap that displays data that proves that working on specific features boosts a product’s success.
With an evidence-based product roadmap, business owners are more likely to secure the investment they require and using product management performance metrics is the most effective way to obtain this evidence.
3. Product management performance metrics provide more actionable insights when compared to traditional metrics such as sales or market share.
Tracking the right metrics helps companies identify any weaknesses in their products early on.
Oftentimes, a company might realize too late that its product is heading for failure. Traditional metrics such as sales or market share can require time to get good data.
With the right product management performance metric, business owners recognize trends sooner so that they can address any issue in the product’s design early on and work to overcome it.
Product management performance metrics can warn firms regarding the poor performance of their products by showing:
- A rapid decrease in the number of customers using a product or a certain feature of a product.
- Where customers spend more time than planned to complete tasks.
- When customers choose to avoid using your product and under what circumstances.
What are the different types of product management performance metrics?
There is a wide range of product management performance metrics available.
For a company to maximize its efficiency, it needs to choose the right metrics to track. Business owners and managers need to be aware of the different types of product management performance metrics.
The main types of metrics include:
Product management performance metrics that focus on the company’s business
Product management performance metrics that focus on a company’s business are the most important because they provide the most valuable data regarding a product’s chances of success.
These metrics are highly valued by stakeholders because they hold the greatest influence over a company’s finances. Below we have described the primary product management performance metrics that focus on a company’s business performance.
1. Cost of acquiring a new customer/customer acquisition cost (CAC)
Customer acquisition cost (CAC) measures the total amount of money a business spends on attracting customers. This includes money spent on advertising and financing the sales and marketing teams of a company.
The customer acquisition cost is used along with customer lifetime value (LTV) to determine whether the money a company spends on attracting its customers is earning it a profit in the long run.
If a company calculates its CAC and LTV and realizes that it’s suffering a loss, then business owners know that they need to develop a new marketing strategy or work on further developing their product management system.
CAC is generally calculated by dividing the marketing and sales spend of a company by the total number of customers it attracts over a given time.
2. Lifetime value of customers (LTV)
The lifetime value of customers is a metric that enables companies to calculate the amount of money a user will earn for the business in the long run.
It helps firms estimate the profit they can earn from one customer throughout the time that customer buys their products.
The lifetime value of customers is a great metric for determining the money firms can invest in attracting a new customer.
To calculate LTV, a firm needs to multiply the average revenue it earns from a single customer by the average lifetime of its customers.
3. Customer revenue
Customer revenue can be divided into the monthly recurring revenue (MRR), and the average revenue per user (ARPU).
MRR is used to measure the total profit a company earns from one of its products for one month. ARPU is used to measure the revenue a company earns from a single customer in one month, or in one year.
MRR and ARPU are both used to monitor the finances of a business and are particularly valuable metrics for SaaS businesses that work based on subscriptions.
MRR and ARPU coupled together can be used to predict the total revenue a company will earn in the future, and are useful when a company is making a long-term financial strategy, or considering changing its employees’ salaries or promotions.
4. Retention at the business level
Retention measures the capability of a company to keep its customers engaged, and prolong its average customer lifetime. Retention is a metric that is used at both the business level and the customer level.
Retention at the business level is termed retention revenue, which is described as the amount of money firms can earn from customers they had over the last month or the last year. Retention revenue can be used to calculate net retention revenue (NRR), which is calculated as a percentage. NRR values above 100% indicate that a company can continually maintain engagement with its old customers, while also drawing in new customers.
Another type of retention revenue is gross revenue retention (GRR). GRR measures the annual amount of revenue a company loses from its customers. NRR and GRR coupled together help paint a complete picture of retention at the business level for a firm.
Product management performance metrics that focus on measuring and growing customer engagement
Product management performance metrics that focus on measuring and growing customer engagement within a company are useful because they help businesses realize how popular their products are among consumers.
Here are some product management performance metrics that measure – and help to grow – a company’s customer engagement.
1. Number of active users
The number of active users that a company has is one of its most important customer engagement metrics, as well as one of the most effective metrics for measuring the popularity of a product among customers.
The number of active users represents the daily active user number, or DAU, and monthly active user number, or MAU.
DAU is used to record the number of active users a company has in one day, where active users are defined as customers who are signed into an account and involved in some sort of transaction.
MAU is used to keep track of the number of active users who participate in financial transactions throughout a month.
The DAU/MAU ratio is used by companies to record the growth of their products, and stay attentive to any decline in a product’s growth. A DAU/MAU value above 20% is considered good, while a value above 50% is considered excellent.
DAU/MAU ratios are especially useful in helping firms determine the success of their products, which puts them in a better position when it comes to planning a budget or developing a new product development strategy.
2. Number and duration of customer sessions
The number and duration of customer sessions is used as a metric to measure the engagement levels of customers with a given product.
The number of customer sessions measures how often customers use a company’s website or online store. Product managers may use customer login data to measure the number of times the company’s website has been visited.
In addition to the number of visits, managers may also measure the duration of customer sessions. Google Analytics is a simple tool for measuring the duration of customer sessions.
3. Customer traffic
Customer traffic is another metric that helps firms keep track of customer engagement levels. Customer traffic measures the number of people who clicked on ads and social media posts to reach the company’s website.This metric is used mostly for websites or online stores.
Measuring customer traffic is a way firms determine the effectiveness of their marketing strategy
4. Bounce rate
Bounce rate is a metric that allows companies to determine the number of people who visited their website or online store once and then left without making any purchase.
This is an important metric because it enables firms to determine the success of their product, and how capable it is at attracting paying customers. A high bounce rate would indicate low customer engagement, which acts as an assignment for firms to revise their product management strategies.
Product management performance metrics that focus on retaining customers
Product management performance metrics that focus on helping companies retain customers are a great way to enhance customer engagement. Such metrics include:
1. Retention rate of customers
Retention rates for customers is a metric that measures the number of customers that continued to purchase a company’s products after a certain time.
This metric is useful in predicting how long a company will be able to keep a customer. Business owners also use the customer retention rate to work on developing a business strategy that aims to prolong the average customer lifespan.
If the customer retention rate is low, businesses may need to revise their product management systems and create a strategy that is more effective at engaging customers and retaining them.
2. Customer churn rate
Customer churn rate is another metric that companies use to help them retain customers. Churn rates measure the number of customers lost by a company over a given time.
Customer churn refers to the number of paid customer subscriptions that have been canceled, while revenue churn refers to the revenue the company lost because of customer churn. Churn rates can be calculated by dividing the number of customers lost during a specific time by the number of customers at the beginning of that period.
Churn rates are especially useful because they help firms gauge customer satisfaction levels. If a company introduces a new product, or a new feature, looking at the churn rate can be a good indicator of customers’ response to the new item.
3. Customer referrals
Customer referrals is a metric that measures how many new customers your pre-existing customers can bring in.
Comparing customer referrals to customer acquisition costs (CAC) can help firms determine whether they can cut back spending on CAC.
4. Customer conversions
Customer conversion is a metric that tracks the customers’ journey through the firm’s products. For example, imagine a customer who progresses from a free membership to a paid membership, to a premium or “pro” membership.
Keeping track of customer conversions is essential because it helps firms identify the points at which an inactive customer is most likely to convert to a high-paying, active customer.
Recognizing these transaction points can help companies build on them, and make the conversion process easier for new customers. Not only does this increase customer engagement, but it also increases the revenue generated.
5. Customer engagement
Customer engagement is a metric that helps companies assess how customers are using their products and their frequency of use.
Measuring customer engagement is essential to determine whether your product is habit-forming, or whether your most active customers are weekly, or monthly users. Recognizing these patterns can help business owners make well-informed decisions that help to boost productivity and profitability.
Product management performance metrics that focus on measuring customer satisfaction
Product management performance metrics that focus on measuring customer satisfaction are metrics that interact with the customer directly and are one of the most effective ways to collect customer feedback.
Here are some product management performance metrics that focus on measuring customer satisfaction.
1. Net Promoter Score (NPS)
Net promoter score (NPS) is a metric used to gauge the number of customers who would promote a company’s product to other people.
NPS operates on a 0 to 10 scale, where customers are asked to rank a product between 0 and 10. Customers who rank the product as either a 9 or a 10 are ‘promoters’ and are the most likely to recommend the product to others. Customers who rank the product between 7 and 8 have a neutral opinion, and customers who rank between 0 and 6 are ‘detractors’, meaning they would give negative reviews about the product.
The NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters. A high NPS score indicates the growth of a company.
NPS is used by a company to determine whether they have more promoters or detractors. If a company has more detractors, then business owners know that they need to revise product development and identify and address the root cause behind the detractors.
2. Customer Satisfaction Score (CSAT)
Customer satisfaction score, or CSAT, is a metric that is used to measure customer satisfaction with a particular feature of a product. CSAT operates on a scale of 1 to 3, 1 to 5, or 1 to 10.
The higher the CSAT, the more likely the customers are to be satisfied with a particular feature. CSAT is an effective metric to assess the success of a single feature.
How can you pick the right product management performance metric?
The type of product management performance metric you choose depends on your company, its products or services, and your industry. You can use multiple metrics to track your company’s progress, but it is advisable to not exceed three to four metrics.
Choosing a metric also depends on the goals your company sets for itself. Generally, though, the primary goal of product management performance metrics is to measure the effectiveness of your company’s product management system and track the company’s general business health.
When choosing metrics, it is important to remember that the best metrics track the success of a company at a business level, but they also gauge the customers’ response to a company’s products.
Conclusion
For a company to monitor its growth and assess its product management systems, business owners must rely on product management performance metrics.
Not only do these metrics let businesses know about their financial growth, but they also determine the success of company products among customers, as well as act as a measure of customer engagement.
These metrics give businesses access to valuable, actionable data regarding their growth, which informs decision-making and boosts productivity and profitability.
Since there are many product management performance metrics available. The best approach is to choose the top five-to-seven metrics most relevant to your products and industry.
When choosing metrics, look for the smallest number that provides a multidimensional picture of your company’s progress.
This means the metrics you choose should be able to record your company’s financial situation, as well as measure your customer engagement and retention levels.