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Product-led growth is important for any SaaS company and to understand the efficacy of that- knowing product-led growth metrics are important.
Making sure customers love your product is important for any business. Growing a company is all about that customer friction is minimized and customers feel attached to the company. It is necessary to make sure customers use the product in its best way to get value. Product-led growth is necessary to optimize ROI, find customer journey bottlenecks, and increase product adoption. Product-led growth metrics help teams like marketing, sales, customer success, and product engineering understand customers better.
Product-led growth metrics offer a reporting system to help all teams navigate towards the same core. These metrics help you create a strategy to succeed. In this blog, we will know how to measure product-led growth and understand the product-led growth metrics you need to know about.
To understand how to measure product-led growth, you need to know the metrics. To grow your company via product-led growth, you need to invest in customers and improve their experience. As per the product-led growth flywheel, you can increase product advocacy and increase customer satisfaction.
The product-led growth framework is all about 4 steps that will help measure product-led growth.
The time to value is what it takes for new users to activate or reach their aha moment and realise value. Time to value needs to be as less as possible to ensure users get to their aha moment faster. This can be done by product education, improved user onboarding, optimised customer relationships, and better adoption.
Expansion revenue is the revenue generated from customers who are existing in the database. It measures revenue from add-ons, upsells, cross-sells and more. It is recommended that at least 30 percent of your total revenue should be from expansion revenue as they are product adopters. Expansion revenue is when users look for new ways to use the product and stay with the brand. It is cost-effective, recommended and a sustainable way to grow SaaS companies.
Leads who know the value of the product and have experienced it are product-qualified leads. It is activated when users choose a free trial or a freemium account. Product qualified leads are those who know the product, understand its value, and have had their aha moment. To do that, you need to identify customer behaviour via session recordings to relate it with retention and product-led growth.
Average revenue per user (ARPU) is a measure of the average revenue each user gets over a period of time. It helps companies understand the level to which the product has seeped into customers. It is calculated by dividing revenue by an average number of users. You can understand how your product is providing value to customers and create a strategy based on that. ARPU is a good indicator of how the product is leading the growth. It is a metric that calculates business health with respect to product adoption or customer retention.
Net revenue churn is the amount of money that is lost after counting expansion revenue and new revenue. The formula is revenue lost in the time period – expansion revenue divided by revenue in the beginning. Net churn is often calculated as a percentage. It is a useful SaaS product growth metric as it helps understand why customers are leaving the product. This is useful in understand how to increase product-led growth.
Customer lifetime value or CLV is the amount of money a customer will spend in your business during their lifetime of association. It is an important metric to understand customer related decisions and upselling information. Customer lifetime value is a way to identify which segments of the customer use the product more and have scope of realising more value.
A product becomes important or has more value when more people adopt the product. A product with higher network becomes more important in terms of value. For example: Instagram is an app that is popular cause many people post photos regularly. It comes in the advocacy stage of product growth. Airbnb, for example, has a great product experience which users love in the long run.
Virality is the average number of new users a single user can refer, bring onboard, and convert into paying customers. Virality is when the product adoption rate increases as more people believe it. This means viral growth. When the rate of product adoption increases with each user that is when product virality occurs. Users must want to promote your product on their own- this is when viral growth is achieved.
Take for example- Zoom. Zoom app works only when the users have the app installed. This is now a popular tool for meetings in the remote world. So existing users indirectly promote the product to conduct a conference.
Product performance helps sales teams understand revenue based on which products are selling well. When you rank product performance based on inputs from the sales team, they will know what products are performing well. This product KPI is one that helps companies understand what resonates with customers.
Monthly Recurring Revenue is the percentage of revenue retained from customers including expansion, cancellation, and downgrades. The other is Net Revenue Retention rate which is the percentage of recurring revenue from existing customers in a specific time period.17
Product-led growth metrics are necessary to understand product performance, look for improvements, and retain customers. The data collected from the metrics will help make improved decisions and increase growth by making customer experience better. So product-led growth is when you can drive growth via your products. Improving product performance by making sure it is latest and updated is important to optimise customer satisfaction.
Published April 05, 2021, Updated April 05, 2021
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