Product Metrics: Where to Start and Why They Matter

There are more choices of products to use in the market than ever before. For your product to survive, it needs to stand out and be the best in its category. 

But building a product is expensive. And in this current pandemic economy of uncertainty, inflation, and geopolitical tension, risk tolerance for a failed venture is low and businesses now operate with less resources. These realities have emphasized the importance of product-led growth. 

In order to drive product-led growth, companies need to have solid product metrics to ensure that they are delivering the greatest value to their customers.

In this piece, we’re sharing a basic primer on product metrics—the value they can generate across a company, core product metrics to start with (advised by our product team), and how they improve product development.

What are product metrics?

Product metrics are measurable data points that businesses use to track, analyze, and evaluate the success of their product or business activity. They can fall into three buckets: traffic metrics, engagement metrics, and monetization metrics (which we’ll walk through more below).

They can include:

• Daily Active Users (DAU)

• Monthly Active Users (MAU)

• Monthly active users who use your product daily (DAU/MAU)

• Session Length

• Net Promoter Score (NPS)

And also inform broader company KPIs like:

• Retention rate

• Churn rate

• Customer Lifetime Value (LTV or CLV)

• Cost Per Acquisition (CAC)

Why do they matter?

Product metrics help determine the efficacy of your product and product marketing strategies. Specifically, they give insight into user experience and customer satisfaction, and lead to data-driven decisions for product development.

• For customers, product metrics can improve their experience.

• For businesses, product metrics can save them money. Product metrics guide businesses in each phase of the product life cycle, ensuring that decisions made during each stage are the best ones.

• For product managers, product metrics can aid in developing a competitive product roadmap. With product metrics, product managers are able to prioritize what features to build, how many to roll out at a time, and when.  

• For product teams, product metrics can save them time. With user experience insights, product teams can focus and prioritize their time on where to improve the product.

• For team members across an organization, product metrics can be used to drive better alignment and give richer context to other department KPIs.

Core product metrics you should be looking at

Here are some of the most common product metrics that teams should be tracking. We've broken them down into 3 buckets: traffic, engagement, and monetization.

Product traffic metrics

Traffic-related metrics captured by lead capture software, provide valuable insights into how and when users interact with your product. These data points measure user activity, highlighting where and which parts of your product are being visited, enabling a deeper understanding of user behavior and engagement.

Daily Active Users (DAU) measures the total number of active users daily, across the entire app.

Monthly Active Users (MAU) measures the total number of active users monthly across the entire app. 

Daily Active Users /Monthly Active Users (DAU/MAU) is a ratio that measures the percentage of monthly active users who use your product daily.  DAU/MAU ratio is useful in getting a pulse product usage; it is calculated by dividing daily active users by monthly active users, and multiplying the quotient by 100.

Session Length refers to the amount of time a user spends in your product, from app open to app close. It shows you how long a user stays on your app in a single session. Session length can be calculated by subtracting the users’ start time from their end time. This metric can be used to gauge the average session length for all users over a certain period of time.

These metrics are typically used to get to deeper metrics. They’re useful but don’t tell a full story on their own. Coupled with meatier metrics (like the ones below), businesses and teams can take more insightful actions. 

Product engagement metrics

User-engagement metrics speak to how a user is behaving in and with your product once they are in it. These metrics show insights on whether or not your product or new product features are well-received by users. 

With these metrics, product teams can gauge where there needs to be an improvement in the product, shifts in campaigns, or redirections in product development. These metrics are also used for product usage segmentation. 

Retention rate measures how long users continue to use a product after their first purchase (or after they sign up or first log in). This is important because loyal customers contribute to a company’s overall health and it costs less to keep existing/old customers than it does to acquire new ones. Check out our User Retention Playbook to see how to understand retention in Mode.

Churn rate is the inverse of retention, meaning that it measures the number of users that leave and are not returning back to use or purchase your product. Churn rate can be calculated by taking the number of users at the beginning of the month, subtracting the number of users at the end of the month, and then dividing that by the number of users at the beginning of the month.

Both churn and retention are often used to determine/signify customer satisfaction.

Net Promoter Score (NPS) is a measure of how likely a customer is to recommend your product or service to another customer. Customers are typically surveyed and ask to rate the likelihood of their recommendation with 10 being mostly likely and 0 being the least likely. 9-10 are categorized as promoters. 7-8 are neutral and 0-6 as detractors.

To dive more into product engagement metrics, use our playbook to understand what features your customers are using most.

Product monetization metrics

Every product has a business model. These are your business (revenue-focused) metrics which are necessary for knowing how product efforts are affecting business goals and how overall business performance may be affecting the product. 

Customer Lifetime Value (LTV or CLV) refers to the monetary value of a customer's relationship to a business. It describes the amount of money a customer is expected to spend for your product or service over the period of their account’s life. LTV can be calculated by multiplying the average purchase value by the average purchase frequency and the average customer lifespan.

Cost Per Acquisition (CAC) refers to the amount of money that a business has to put in (through marketing campaigns, paid advertising, etc) to acquire a customer. With this metric, a business can determine whether they are getting a return on their investment. CAC can be calculated by dividing the total cost of sales and marketing campaigns related to acquiring customers divided by the number of new acquired customers.

We've created a Mode report template that can help you calculate LTV and CAC.

Vanity metrics & what to avoid

When developing and using metrics, it’s easy to fall into the trap of focusing on vanity metrics, which are data points that may look good on paper, but cannot be used to improve strategy. Vanity metrics by themselves are not contextualized enough to give an accurate or true picture of what is going on. 

Many traffic-related metrics can easily fall under this category. For example, a metric like “monthly active users,” if high, can give the impression that things are going well. But what if traffic is only high because a business leader with a huge following shared your post on social media that month? This metric doesn’t automatically lead to conversion or mean your overall business goals are being met. Vanity metrics won’t tell the full story of what’s happening but can be used as starting points for product performance.

These product metrics are just the tip of the iceberg

The best metrics for your company will depend on your product, the type of service you provide, and the type of customers you serve. If you're ready to go a little deeper into product metrics, see our post on types of user segmentation metrics. Learn how Cash App and Ibotta use Mode for product metrics.

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