Key Performance Indicator (KPI)As the name says, the KPI is a Key Performance Indicator. There are hundreds of metrics that can be measured, but that does not mean they are all important to your business. KPIs are precisely those relevant indicators that need to be observed and analyzed, as they demonstrate the performance of strategic actions and initiatives. They are valuable because they assist in the decision-making process, confirming or refuting tested hypotheses. The best way to choose good KPIs is to think about how they relate to your objectives. If you want more people to use your app, for example, there is no use watching the number of followers on your Instagram account. One option, in this case, would be to evaluate the conversion rate of the “download app” button on your landing page, associating it with the rejection rate, which indicates how many people have uninstalled the app. Remember that looking at the wrong indicators can result in wasted time and money! Avoid the well-known vanity metrics, which are numbers that you can keep track of, but which should not influence decision-making.
Objectives and Key Results (OKR)The model that supported Google’s growth is still used today by many Silicon Valley companies. OKR sets targets to be reached and objectives to be accomplished through the achievement of key results. The objectives must be clear and known to everyone on the team and must be stated so that people understand their impact on the business. The key results, on the other hand, need to represent the achievement of objectives effectively, and here it is even possible to use KPIs. Its simple and efficiency-focused approach makes OKR an excellent alignment tool since everyone knows what to do and what results to expect. For example, your objective might be to increase the number of transactions carried out through your payment platform by acquiring new customers on social media; and your key result could be reaching 10,000 transactions per month of customers converted by Social Media Marketing.
North Star Metric (NSM)A guiding star is one that indicates a direction, that guides a path. That is exactly what the North Star Metric framework proposes. Through it, there is the definition of a crucial metric that focuses on business growth. It must be disseminated among all teams involved with the product so that everyone can connect in search of the same “north”. NSM expresses value and represents vision and strategy. Its objectives are to facilitate alignment and communication between teams; prioritize and accelerate the decision-making process, and encourage concentration on the impact generated by the product and on sustainable growth. For example, the number of customers completing their first purchase on your e-commerce website might be a North Start Metric. Suppose this number is five a day: what are the actions that will be taken towards this objective? Which ads will the marketing team run? What layout changes does the design team propose? Has the customer service team identified the biggest difficulties or complaints from potential buyers?
Pirate Metrics (AAARRR)Awareness, Acquisition, Activation, Revenue, Retention, Referral: these are the six metric groupings in Pirate Metrics. This framework proposes these categories as possible to be analyzed, according to which aspect of the business you want to measure. Each of them is associated with a moment in the customer’s life cycle and, therefore, helps to identify areas for improvement – aspects that must be worked on in order to improve the product’s performance.
- Awareness: The users’ first interactions when they are becoming aware of your product. Visits, Click-through Rate (CTR), time on the page, and pages per session are examples of metrics.
- Acquisition: The users have given you their data and now you know who they are. Conversion rate per visit, engagement rates on social networks, and opportunities generated are important.
- Activation: You know who the users are and they have effectively adopted your product – you are now on the onboarding stage. This category is most common for SaaS products and includes metrics such as the number of subscriptions, the average time between subscription and active usage, and Product Qualified Leads (PQLs).
- Revenue: The users, in addition to being active, became paying customers. Monthly Recurring Revenue and Annual Recurring Revenue are the main metrics for this category.
- Retention: Now that users have become customers, the important thing is to understand how loyal they are to the product. Retention rate, payback time, and customer satisfaction are essential product metrics.
- Referral: Now that customers are loyal, they start to act as promoters of the product. Metrics such as sharing on social media, reviews, and recommendations can be analyzed.
Sales FunnelWe couldn’t wrap up this part of the article without talking about the Sales Funnel: It is a tool that allows you to analyze your business’ conversions. At the top of its structure are the visitors, those people who discovered and viewed your product; then the leads, which are people who, after discovering your product, took some action (such as filling out a form or requesting contact) because they considered it a possible solution to a problem; opportunities are those leads that effectively see value in your business and are willing to pay for it; and customers are the buyers, who have gone through the entire Sales Funnel and end up being converted. But what does this have to do with product metrics? To monitor the health of your business through the Sales Funnel, several metrics should be considered. They relate to the different levels of the funnel.
- Interaction Metrics – Top of the Funnel: How do visitors and leads interact with the product? What are the hot zones? How does the usage journey work? Pageviews and click-through rates are important.
- Performance Metrics – Middle of the Funnel: Can leads that have taken action actually become opportunities? Are they more interested in your content or in your product? The conversion rate of a series of buttons can be observed.
- Return Metrics – Bottom of the Funnel: How many visitors became customers? How much was necessary to invest to win each customer? Return on Investment (ROI), Customer Acquisition Cost (CAC), and Customer Lifetime Value (CLV) are critical metrics.
What Are The Main Product Metrics?We explored some Frameworks that help define common goals and product metrics, such as KPIs, OKRs, NSM, Pirate Metrics and Sales Funnel. But what metrics are these? We will address the most common metrics in the universe of digital products below. But first, it is worth noting: actionable metrics are those that effectively measure the success of the digital product or service, as opposed to the vanity metrics that can be observed but should not influence decision-making. The number of registered users in an app, for example, is a vanity metric, while the number of active users is an actionable metric. Remember this before choosing the best indicators for your business.
Customer Acquisition Cost (CAC)The Customer Acquisition Cost defines the average investment required to acquire a new customer. The CAC is important for studying the feasibility of a business model and also for evaluating investments in the marketing of products that have already been launched. It is important to note that depending on the objective, the calculation of the Customer Acquisition Cost may vary:
- To evaluate investments in marketing, the following simplified formula must be used: amount invested in acquisition marketing (AM) divided by the number of new customers acquired (CA) – CAC = AM/CA.
- To study the feasibility of a new business, the use of the intermediate formula is recommended, adding the amount invested in acquisition marketing (AM) with the cost of the sales and marketing teams (ST), and dividing them by the number of new customers acquired. (CA) – CAC = AM+ST/CA.
Customer Lifetime Value (LTV)Customer Lifetime Value or LTV is the value that your user deliver to you throughout the period they are subscribers or users of the product. The objective is to evaluate the financial value of each customer and, thus, direct efforts not only towards the acquisition of new users but also towards the retention of recurring ones. LTV allows for the understanding that not all customers are the same and some represent greater assets for the business. Thus, the investment value to acquire them may even be greater than for others, if this is a strategy chosen by the business. The calculation of the Customer Lifetime Value is – LTV = Retention Rate / 1 + Discount Rate – Retention Rate, where: (1) the Retention Rate refers to how long a customer interacts with specific content; and (2) the Discount Rate is the expected return on investment.
Click-Through Rate (CTR)The Click-Through Rate represents the number of times users clicked on a certain action in relation to the total number of times that action was proposed. An example of CTR might be the number of clicks on a Google Ads ad compared to the number of times that ad was shown. When the CTR is below expectations, some actions can be used to seek improvements, such as focusing on the language and the target audience, including images that trigger users, improving the buttons (CTAs), and analyzing the conversion funnel to make more precise adjustments. Remember that you need to know the user in order to choose the best option and add greater value.
Conversion Rate (CVR)The Conversion Rate indicates the performance of your digital product. It measures actions that you want the user to take and, therefore, each one of them will have its own Conversion Rate. For example: if an e-commerce website receives 200 visitors per month and they make 50 purchases, the CVR is 25% (50/200). Now, if in a specific Instagram marketing campaign, 10,000 users are impacted by an ad, and 1,500 actually visit that ad’s landing page, the CVR is 15% (1,500/10,000). Conversion Rate Optimization (CRO) can be achieved by formulating hypotheses for not converting the action and then implementing A/B tests to assess performance.
Churn Rate (CR)The Cancellation or Abandonment Rate refers to the number of people who stop being frequent users or subscribers of a digital product. Its calculation is made by dividing the number of users who abandoned the product by the number of the product’s active users. It is important to point out that every product will have a Churn Rate; after all, some users will always be leaving your product. The basic condition for success is for the Growth Rate to be higher than the Abandonment Rate and, to that end, some good options are to maintain the good quality of content, deliveries, and customer relationships.
Net Promoter Score (NPS)We couldn’t wrap up this article without talking about the most famous loyalty metric of them all. Also known as Network Promotion Score, it is used to measure the degree of user satisfaction with the digital product, functionality, or service. Easy to apply, NPS consists of a rating from 0 to 10. With your customers’ data in hand, you can classify them as detracting users, that is, those who have provided ratings from 0 to 6 and are therefore not satisfied with the product; passive users, or those who provided ratings between 7 and 8 and, despite being relatively satisfied, are not brand loyal; and promoting users, or those who provided ratings 9 or 10, are satisfied and encourage other users to join the product. The calculation of the Net Promoter Score is achieved by subtracting the percentage of promoting customers from the percentage of detracting customers. For example, if 85 people provided ratings, 15 detractors (17.64%), 40 neutrals (50%) and 30 promoters (37.5%) – NPS = 37.5% – 17.64% = 19.86%. For reference purposes, an NPS above 75 is considered excellent, 50 to 74 very good, 0 to 49 fair, and below 0 is considered bad.
Options of ToolsNow that you know some frameworks for setting objectives and goals, and you know the main product metrics, it is time to analyze the data. Some tools that can help in this process are Mixpanel, Hotjar, FullStory, and Mouseflow.
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