For a successful business to run, the business owners need to evaluate their businesses from multiple view-points through measurable and quantifiable numbers. These numbers are called metrics. Product success metrics are the key parameters based on which the performance of a business in the real world is measured. E.g. every user of a product is just a number to the provider. This is just the most basic information or metric related to the product.
The more businesses dig into the information, the further they can diversify on the kinds of metrics derived from the usability patterns of their customers. These metrics are akin to different dimensions a business can be seen from. Based on this multi-dimensional view in numbers, various functions in a business can be adjusted to improve specific areas of the business. The importance of metrics in a business can range from high to low priority and the actions responding to them can be taken accordingly. For example a high priority metric can demand a company to respond as quickly as within 24 hours to make an urgent impact on its performance. As pointed out by John Rossman in Think Like Amazon (2019):
“Today, you need real-time data, real-time monitoring, and real-time alarms when trouble is brewing—not lag-time metrics that hide the real issues for 24 hours or longer. Your business should operate like a nuclear reactor. If a problem arises, you need to be aware of it immediately.”
While there are various metrics at the business level that pertain to the revenue generated by the customers, in this article we are going to specifically look into the five most important product success metrics used by many SaaS-based organizations. They are:
- Conversion rate to Customer
- Active users
- Product Usage
- Net Promoter Score
- Adoption rate
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Conversion Rate to Customer
Based on the marketing strategy of your product, you might have used different methods to drive leads to your product. The prospects must have given their email-ids to subscribe to your blogs or download your e-book. The most effective and commonly used strategy is to allow users to try a demo version of your product for a limited time period. This is the clear method through which the success of the product can be gauged. If the right number of customers choose to buy a subscription of your product after their trial period is over then it is a clear indication that your product was built on the right track.
Hence, the customer conversion rate can be measured as:
Customer conversion rate = ( Number of conversions / Total number of qualified leads ) x 100
While there is no fixed number that defines a good conversion rate for all kinds of businesses, you can define it for your own niche based on the popularity of the category of your product or if it is a B2B or B2C product. However, a higher conversion rate indicates that your product is easy to adapt to and quickly liked by its users.
Active Users (Daily Active Users / Monthly Active Users)
There might be chances that an app has been downloaded but not actively used by the customers. To know how often an app is used in a day or a month this metric is used. Daily Active Users (DAU) are those users who login to your app at least once in a day and Monthly Active Users (MAU) are those who do so at least once in a month. Based on this metric you can also derive many other metrics to measure product success like:
Customers most prone to churn = Total number of subscribers – Total MAU
Percentage of Healthy accounts = (Total MAU / Total subscribers) x 100
If the health score is low then it is a clear indication that you need to come up with new strategies for your users to increase their usage of your product to avoid the risk of churn.
Product usage or ‘stickiness’ is another term commonly used in these lines which are used to measure the level of engagement users show with your app. It is calculated as:
Stickiness = ( DAU / MAU ) x 100
The higher the percentage, the higher is the engagement users have with your product.
This metric can also be used to identify which features are being most used by the users to know the feature-wise popularity of your app. And these data can be compared with the features used by churned users to gain a holistic insight so that your product design can be adjusted accordingly to better suit your customers.
This metric is a clear indicator of the level of commitment or engagement users have with your product. Based on the number of times they login to your app during the business hours you can easily calculate how deeply integrated your product has become with their business ecosystem.
This is one of the most widely used product success metrics through which you can calculate how likely your users are going to promote your product to others. It is calculated by simply subtracting the percent of detractors (those who don’t like your product) from the percent of promoters. Through a short customer survey you can ask your users to rate your product based on a scale of one to ten. Those who rate it from 0 to 6 are usually the detractors; those with the ratings of 7 to 8 are neutral and finally, promoters are the ones who usually rate it from 9 to 10.
You can say that Net Promoter Score (NPS) is a quantifiable measure of word-of-mouth marketing. According to Nielsen research, “more than eight-in-ten global respondents (83%) say they completely or somewhat trust the recommendations of friends and family. But trust isn’t confined only to those in our inner circle. In fact, two-thirds (66%) say they trust consumer opinions posted online.”
Same holds true for negative NPS too. Detractors can have adverse effects on your brand if they post negative feedback of your product online which could ultimately result in economic penalties.
Product adoption is a process that spans a customer journey from when they hear about your product for the first time to the point when they have become regular users of it. Adoption rate is calculated by the percentage of new users to the total number of users. For example if you have a total 150 users of which 30 are new then your adoption rate is 20%. It can be calculated on a daily, weekly, monthly or yearly basis.
High adoption rate means your product is not only nailing the solution for which your customers are drawn towards it but you also have an impeccable onboarding process in place.
The adoption rate can also be measured on new features to know how long it takes for a feature to be used regularly by the users based on which a change in the product design can be anticipated.
Other Product Metrics That You Need to Measure, to Ensure Business Success
Profit Margin (PM)
Profit margin is a term that involves all costs and expenses. Profit margin is calculated by dividing the percentage of net profit by net revenue. Since profits exclude expenses — it shows the true value of the financial fabric of the company. If the gross margin is counted, it may include all the expenses and incurring costs. This makes it tough to ascertain the actual measure of its progress and success.
Profit Margin = Net profit/ Net Revenue x100
Churn rate can be looked at in two ways: Revenue churn rate and customer churn rate. The churn rate is the percentage of either revenue or users lost in a time period. Churn rate is calculated in a simple manner.
Reducing the churn rate is important to sustain a SaaS brand. Churn rates are different from one sector to another.
Churn Rate = Churned Users/ Total Users
If the business stops being associated with the company, it is said to have churned. If subscribers don’t renew their association, they are churned. The higher the churn rate, the more your business falls.
Session duration is another helpful product success metric. It is a KPI that helps you know the weakness and strengths of the product. You can know how interested the customer is inh the product and know what works for them. You can also detect product weaknesses and ensure their efficiency is improved.
You can even see a product heatmap of what is being used and develop your product design around it. Session duration lets you know about the regular interactions with users on a site.
Number of Sessions Per User
If tracking the time of each session was not enough, you need to track the number of sessions as well. By tracking the number of sessions per user, you can avail insights on the customer lifetime value. If the customer interacts with the product regularly, it amounts to more sessions. You need to increase the number of sessions per user and keep them invested with the product for product success.
It is calculated by dividing the total sessions in the X period by the number of product users in the X period. You can choose the period as per your criteria. However, it is estimated that a base period spent on the website or product must be at least 30 minutes.
Customer Satisfaction Score (CSAT)
Customer Satisfaction score or CSAT is a popular product metric that measures customer satisfaction with every interaction. It is a simple way to know the answer to the question – ‘How happy or satisfied are you with the product?’. CSAT helps you know if the key features of the product are helping customers or not.
The feedback is the criteria in the CSAT product metric to know how customers would rate a feature or product. Product success metrics will help know what customers like and what they don’t. If you take customer advice seriously, they will turn into promoters.38
Product Metrics Lie at the Core of Business
While these metrics are not as revealing the business value of the product as other revenue related metrics like monthly recurring revenue (MRR) or Customer lifetime value (LTV), they are more useful at the core of the business because product success is the most fundamental measure of the success of any business. Until you know how to measure product success using these metrics, you won’t be able to get feedback to improve your product development strategy. And only when your product is made flawless, will it be able to make its place and sustain itself in this ever-fleeting business environment.
Rohan has over 11 years of experience in client services, marketing and hospitality field. Previously, he was head of digital marketing for a hi-tech mobile application. Rohan is driven by new challenges and the possibility of making an impact on individuals and businesses.
Published May 07, 2020, Updated March 01, 2023