Metrics in are a widely debated subject. What are the key product metrics? How do we navigate the trade-offs between them? The straightforward answer is, naturally, "it depends" :). Above all else, the answer hinges on the product's purpose and its stage in the lifecycle. product management Product mission Mission-driven businesses define their purpose through serving a particular mission. A narrow view on business is that it is about making money (which is true) but that view does not help answer the question how (you are going to make that money). The mission, or purpose, of the business or product is what defines the how. Missions can be as broad and aspirational as Patagonia’s “ ” or as specific and down to earth as IKEA’s “ ” What makes a good mission is clarity and focus. A well-articulated mission should make it easier to choose the right metrics because they should help track progress towards the vision - a desired state of the world when the mission is accomplished. Save our home planet To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. For products that charge their customers directly for goods or services, success in fulfilling the product mission usually goes hand in hand with the product’s financial performance, and the success metrics will reflect both aspects. However, for products that monetize through advertising achieving the mission's success and financial success may involve a certain degree of trade-off - e.g. aggressive advertising will drive revenue but it will also interfere with user experience and drive some users away. It becomes crucial to monitor and maintain a delicate balance between the two throughout the product's lifespan. Product lifecycle is a framework to describe typical stages of a product or business from its inception to decline. Similar to a live organism, a product is conceived and born (introduced to the market), then it grows, matures and eventually declines. Product lifecycle The diagram below marries two popular ways to represent the business cycle: one as a chart of sales vs product lifecycle stage and the other is the that maps a product’s or a business’s competitive position in the market (product market share vs market growth rate) and gives them distinct names: BCG matrix 1. : a new product is introduced to a fast-growing (and probably also new) market Question mark 2. : a product conquered a large share of a fast-growing market Star 3. : the product is dominant on a slow-growing (mature) market Cash cow 4. : a product has a low share of a slow (mature) market Dog : Source Business-to-you We can map the “Question mark” stage to the introduction of a new product to an attractive, fast-growing market. This is the point where the product needs to find - i.e. prove its appeal to the customers of that market and potential to further growth. If it succeeds, it will open a path to become a and conquer a large share of the market; otherwise it will just keep growing with the market as a small part of it till the market declines, and the product becomes a . product-market fit Star Dog Assuming the product found its fit with the market, the next stage is all about . : you want to have a nice return on your investment but not at the cost of missing new customers. A is a product that managed to gain a large share of an attractive growing market. growth: number of customers, sales volume, market share Profitability at this stage is important but secondary to growth Star Finally, any market reaches maturity and slows down; at this stage a previous turns into a . . At this point the product / business would have a large customer base which it would try to exploit to the fullest to generate cash for new ventures and hopefully create new products. Star Cash cow The goal of a Cash cow is to bring as much revenue as possible till the market declines and shrinks Star In the original BCG framework, a is a product that never really took off, i.e. never gained a sufficient share of a market. In that sense, a is not a final life stage of a successful product. However, if we ignore the market share consideration, we can say that after the market has shrunk so much that a does not turn good profit anymore, it is time to divest or pivot that product or business, and focus on new ventures. Since it is an advised approach to Dog products, we can call the last stage of any product lifecycle a as well. Dog Dog Cash cow Dog Key metrics at different product life stages Now that we discussed the importance of product mission and the main stages of a product life cycle, let’s have a look at the key product metrics. Metrics are a reflection of our beliefs of what is important, either in a good or a bad sense, and thus they should map to broader goals that we are trying to reach (mission and vision) as well as the business’s financial well-being - without money we are not going to drive much impact and achieve our mission. Before we dig further into the lifecycle stages again, I would like to talk a little about the types of metrics that you need to have a holistic view of your product performance. There are three types of metrics that I recommend tracking for that purpose: - this is your success definition: number of active customers, growth rate, profitability, etc. Topline metrics are fundamental characteristics of your product that define its viability at a particular lifecycle stage. Another way to look at topline is that these are the numbers that you want to track in order to gauge how well you invested your money when developing and marketing your product. Topline metrics - these metrics help you understand what is happening or is going to happen to your topline. They describe the process that leads to your topline - e.g. sales funnel metrics, user behavior metrics, etc. These metrics help you “debug” what’s not working and fix it, or to identify what’s working well and double down on that. Supporting metrics - these are counterweight / checks and balances metrics. They track an important “health” dimension of your customer base (e.g. retention), customer experience (e.g. service downtime) or your finances (e.g. costs). Adhering to your guardrails ensures sustainability of your product’s success. Guardrails Product introduction To recap: at the product introduction stage, our goal is to During the validation, it is vital to bring an MVP - minimum viable product - to market as soon as possible, start gathering feedback and tweak the product and its value proposition to capture the right demand and get traction with the right customers. Since trial and error is a natural approach at this stage, you don’t want to over-invest into a particular solution - you may have to abandon it and start from scratch. Agility and scrappiness is what you need to succeed during this time. prove or find product-market fit. Two-sided marketplaces such as a ride-hailing platform have an additional “cold start” challenge: you need to have sufficient drivers available so that riders could actually book a ride with a reasonable wait time, and you need to have enough interested riders for drivers to earn money and continue using the app. However we decide to tackle that challenge, from the product success - and metrics - standpoint what’s important is our ability to attract and retain both drivers and riders for the platform to work. So what are the metrics that will help you navigate this stage? . Typically the success at this stage is defined as that belong to a larger segment into which your product can continue growing. Since it is a very early stage of the product / business lifecycle, you would also want to track how fast the number grows week-over-week, and ideally you would want to see that growth rate to be double-digit. TOPLINE reaching a certain number of active / paying customers . When your product is very new, and barely anyone knows about it, your key challenge is to create awareness, and attract and convert the right kind of customers before you run out of money (whether your personal funds or a corporate budget for that project). During this process the is your best friend: you want to be able to track prospective customers at each stage and work on increasing the funnel throughput at each of the stages, from awareness (prospects) to intent (leads) to transaction (customers) and, with any luck, repeat transactions (loyal, returning customers) and advocacy. I SUPPORTING METRICS classic sales funnel mage source: SalesRecipe . . Two things that you need to be careful about is the amount of money you have and how well you converted customers are doing after the conversion. At the product-market fit stage you have a limited budget, and you need to find the fit before you run out of it. and are the metrics that capture this consideration. The burn rate measures the rate at which a startup is spending money compared to the rate at which it is generating revenue. Runway is the length of time a startup can sustain its operations based on its current cash reserves and burn rate. Since the key expense at this stage is marketing, is the metric that you need to be aware of because it determines how viable, or not, your current model is - together with . For example, if you pay $30 to get a new customer, and they buy from you for $20 and never come back, you lose $10. GUARDRAILS Burn rate runway Customer acquisition cost (CAC) customer retention Growth Kudos! You proved the product-market fit, and your next job is to grow your product - meaning grow your active/paying customer base, transactions (or other meaningful actions) and ultimately revenue. At the growth stage two key factors define success: . The MVP that you presented to the world at the introduction stage now needs to turn into a full-featured product that continues addressing your target customer needs in an effective and distinct way that other products / businesses cannot easily match. Product performance can be driven by unique aesthetics, superior technology, exclusive content, etc - anything that helps you differentiate from other products in a way that attracts more customers and makes them loyal to your product or brand. product quality, or performance, and sales effectiveness However, it is rarely enough to just have a great product to win over the market. High quality needs to come hand in hand with to let potential customers learn about your product, try it and hopefully continue using it. Whether you use performance marketing, promotional partnerships or cold calls, it will require specialist time and needs to be paid for. Finding the balance between how much you spend on attracting new customers and how much you are able to earn from them, while maintaining a steady and preferably double-digit growth rate, is the challenge of this stage. effective marketing and sales . The (orders, rides, subscriptions, etc) are the metrics that allow you to watch your growth trajectory. Depending on the nature of your product and how often you expect your users or customers to use it, you may want to track your metrics on a daily, weekly or monthly basis, or maybe all together. TOPLINE number of active users / paying customers, and the volume and value of transactions The above mentioned sales funnel remains your best friend at the growth stage. Another important family of metrics to track are about how your customers use your product and what can be improved in their experience. (e.g. DAU/MAU, daily sessions per user, daily time spent) and they derive from it (CSAT, NPS) are examples of such metrics. Check out this to read more about the usage metrics; and about transactional vs. relational customer satisfaction. SUPPORTING METRICS. Frequency and intensity of use satisfaction Sequoia capital post this article . The key metrics at this stage are related to - evaluation of the profitability and viability of a business model on a per-unit basis. Unit in this case refers to a user or customer, and the goal is to understand how much profit the product brings on average compared to the average cost of acquiring a customer. is used for estimating the long-term revenue generated by an average customer, and typically the is computed. There exists a notion of , meaning an average customer generates at least three times the money that was spent to acquire them. GUARDRAILS unit economics (Customer) lifetime value, or (C)LTV LTV-to-CAC ratio “ideal” LTV:CAC ratio of 3:1 Maturity Your product grew fast and became a large player in the market: you have a large and stable customer base that keeps coming back and is happy with your product. Now is the time to get the most out of your investment into the product. Your key levers are marketing and sales, and optimization of maintenance cost of your product. Marketing and sales should be more effective now since you already acquired a lot of customers, and you only need to offset the natural churn of the customer base. The product has already won over the market so you may want to look into automation and other ways to optimize the cost of its upkeep, and redirect your resources to new promising business opportunities. is now your top of mind: after a long time of pouring money into the product and a loyal customer base, you want to see that investment paying off. There are many different profitability metrics that take into account different types of costs (gross profit margin, net profit margin, EBITDA) but the most generic one is . ROI measures the return generated from an investment relative to its cost, and is computed as Net Profit is calculated by subtracting the total expenses associated with the investment from the total revenue or income generated. Cost of Investment represents the total cost incurred to acquire, develop, or implement the investment. It includes expenses such as purchase costs, production costs, marketing expenses, and any other costs directly related to the investment. Both Net profit and TOPLINE. Profitability Return on Investment (ROI) Net Profit / Cost of Investment. . Beyond , at this stage supporting metrics become very specific to your product and operating model, and become heavily skewed toward business performance measurement. On the revenue generation side, your aim is to drive high marketing ROI - e.g. you could choose to grow organic sales (and thus measure them). Minimizing operational costs could be about increasing automation in some functions, e.g. customer support, and you would want to track progress in that area. SUPPORTING METRICS net profit and cost of investment . Even reaching your product maturity, you still need to monitor . Turbocharging your marketing efforts, or taking an overly zealous approach to cost optimization may affect customer experience and cause churn, hence the need to monitor the health of your customer base, one of your most precious assets. Other guardrails would be specific to concrete actions you take to boost your revenue or cut costs. GUARDRAILS active users / paying customers as well as volume and value of transactions In conclusion The table below captures the key points discussed above about product lifecycle stages, and associated goals and metrics: I hope you found this article insightful and that it empowers you to make informed decisions in your product management journey. If you have any questions or comments, please leave below and I will do my best to follow up!

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Key Product Metrics and Where They Come From

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Natalia Kuznetsova

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Key Product Metrics and Where They Come From

Too Long; Didn't Read

Natalia Kuznetsova

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