What are Product Metrics, and How to Find the Right Ones?

Hey there! As a fellow data geek, I‘m excited to dive into the world of product metrics with you.

Understanding metrics is crucial for building products that customers love. But with so many options, it can be tricky to identify the diamonds from the rough.

In this comprehensive guide, we‘ll break down exactly what product metrics are, why they matter, and how to select the right ones for your business.

Grab your favorite data viz tool and let‘s get started!

Why Product Metrics Are Essential

Product metrics provide the cold, hard facts on how your customers interact with your product. Without them, you‘re flying blind.

Relying on guesses instead of data leads to building features nobody wants. Metrics prevent us from wasting engineering time and company resources.

Here are some key reasons metrics are so important:

Align teams – Engineers, PMs, designers all focus on moving the same needles.
Understand customers – Reveal what users want through their behavior.
Optimize product – Identify issues and opportunities to improve.
Support decisions – Validate hypotheses and back up proposals with data.
Drive growth – Spot trends and predict future revenue.
Increase accountability – Quantifiable goals keep teams focused.

As data analyst Allie Brosh put it:

"Without data, you‘re just another person with an opinion."

Metrics transform products from hunches into insights.

Choosing the Right Metrics

With endless metrics to pick from, how do we identify the vital few that offer maximum value?

Start with Goals

First, get crystal clear on your short-term and long-term goals:

What key results are we trying to achieve?
How will we know if we‘re successful?

Let‘s say your goal is to increase paid conversion rate from 7% to 12% in the next quarter. That points us toward conversion-related metrics.

Focus on Customer Value

Next, understand what creates value for your customers. What brings them back?

Retention and engagement metrics like NPS and churn tell us if we‘re delivering ongoing value.

Balance Metrics Categories

Track both engagement and business metrics to get the full picture.

Engagement maps to customer satisfaction. Business maps to revenue. We want both.

Limit Vanity Metrics

Avoid vanity metrics that sound important but don‘t actually provide actionable insights.

For example, tracking social shares doesn‘t necessarily improve conversion or retention. It just inflates our egos.

Instrument Everything

Ensure you can systematically measure the metrics long-term through analytics and dashboards.

Patchy, inconsistent data prevents trend analysis over time.

Context is Key

Know what constitutes a "good" or "bad" value for each metric. This comes from understanding your business and customers.

By following this process, we extract the metrics that offer the most value based on our goals, customers, and business model.

A Balanced Metrics Mix

To get a balanced perspective, track metrics across these 5 categories:

Let‘s explore some of the most valuable metrics across each area:

Acquisition

These metrics track your inbound engine – how you acquire new users:

CPL – Cost Per Lead
CPT – Cost Per Trial signup
CPC – Cost Per Click
Conversion rate – % visitors who sign up

Without enough quality users coming in the top of the funnel, the rest suffer. Dial in affordable, scalable acquisition channels.

Activation

Measures how engaged and active new users are:

1 day/7 day retention – % users active after 1 and 7 days
Adoption rate – % new users complete key workflows
Time to first action – How long from signup to value

High activation indicates you‘re delivering initial value quickly.

Retention

The key to growth – keeping customers engaged long-term:

Churn rate – % customers who cancel
MAU/WAU – Monthly/weekly active usage
User half-life – Cohort retention analysis

If churn is too high, you have a leaky bucket. Reduce churn through loyalty and engagement.

Revenue

Understand the revenue engine and levers to scale it:

MRR – Monthly recurring revenue
LTV – Customer lifetime value
ARPU – Average revenue per user
Conversion rate – % trials convert to paid

Low conversion and LTV? Pricing experiments, special offers, and pricing page optimization can help lift these numbers.

Referral

Maximize organic growth through word of mouth:

NPS – Net Promoter Score
Virality loop – Signup conversion from sharing
Social mentions – Brand and product buzz

Referral happens when you delight customers enough to share you. Measure and amplify it.

Common Pitfalls to Avoid

Leveraging metrics is powerful. But many teams fall into these common traps:

Too many metrics – Limit to the vital few tied to goals. More metrics = confusion.

Measuring the wrong things – Vanity metrics don‘t offer strategic value.

Lacking context – Know what‘s "good" and "bad" for each metric.

Inconsistent tracking – Ensure accurate, unified measurement across tools.

Ignoring surprises – Don‘t dismiss unexpected metric spikes or drops. Investigate them.

Data paralysis – Don‘t overanalyze. Take decisive action on insights.

The key is carefully curating the metrics that matter, tracking them rigorously, and taking productive action on what they reveal.

How Top Companies Use Metrics

Let‘s look at some examples of how leading companies leverage metrics to drive growth:

Hubspot

Hubspot meticulously tracks SaaS metrics like MRR, churn rate, CAC payback period, and more. This allows them to optimize unit economics.

They also use NPS to ensure they‘re delighting customers. By linking NPS to churn, they increased retention by 15%.

Airbnb

Airbnb relies on core metrics like bookings, listings, reviews, and repeat usage rate. These help them facilitate transactions and loyalty.

Digging deeper, they track host satisfaction through surveys. Happy hosts provide better experiences, which drives guest satisfaction and bookings.

Peloton

Peloton uses engagement metrics like workouts completed, retention rate, and net promoter score. These track their success at building exercise habits and loyalty.

They also measure instructor NPS. Popular instructors keep users engaged over time better than those with low ratings.

Takeaways

Align metrics to overall company goals and growth levers.
Combine big picture metrics with detailed segmentation.
Leverage metrics to identify issues and opportunities.
Track metrics diligently over time, but focus on taking action.

Maximizing the Value of Metrics

Here are some tips to get maximum value from your product metrics efforts:

Automate tracking

Minimize manual tracking to ensure data consistency. Use tools like Mixpanel, Amplitude, or Heap to automate event tracking.

Visualize key metrics

Build dashboards in tools like Looker, Mode, or Google Data Studio so anyone can monitor metrics.

Set targets

Define what you‘re aiming for with each metric. Give teams a goal to work towards.

Rinse and repeat

Continually monitor metrics and iterate – this isn‘t a set and forget activity. Optimize based on trends.

Don‘t silo metrics insights within data teams. Socialize key findings across the org for impact.

Balance data and intuition

Leverage metrics alongside good judgment. Data informs decisions, but doesn‘t make them.

Approaching metrics as an ongoing optimization activity ensures maximum value to the business.

Product Metrics Glossary

Let‘s quickly define some of the most common and useful product metrics:

CAC – Customer Acquisition Cost. The cost to acquire a new customer.

Churn – Percentage of customers who cancel your product over a given timeframe.

CLTV – Customer Lifetime Value. Total revenue from a customer over their lifetime.

Conversion Rate – Percentage of users who take a desired action on your product.

DAU – Daily Active Users. Number of daily unique users.

LTV – Customer Lifetime Value. Total revenue per customer.

MRR – Monthly Recurring Revenue. Revenue from monthly subscriptions.

NPS – Net Promoter Score. Customer satisfaction and loyalty metric.

Knowing these basics will give you the confidence to dive into metrics!

Closing Thoughts

That wraps up our journey into the data-powered world of product metrics!

The main takeaways:

Metrics bring objectivity to product development and marketing.
Choose metrics aligned to your goals and customer needs.
Track engagement, revenue, activation, retention, and referral metrics.
Automate tracking and visualize metrics to unlock insights.
Take action on trends and surprises that metrics reveal.

Focusing relentlessly on the metrics that matter will level up your product skills and career. But don‘t get lost solely tracking numbers – combine metrics with intuition, empathy and vision.

I hope this guide brought clarity to the why and how of leveraging metrics. Feel free to reach out if you have any other questions!