Jan 17 2019

What are the Most Important Software Product Metrics to Track?

by Tivix

In this age of data overload and fierce global competition, determining which product metrics to analyze can be daunting. Which do you choose? Lifetime Value? Churn rates? Net Promoter Scores? Problems per User-Month? Depending on your particular product, you’ll need to collect several different data points to gain a complete picture of both your end user (customer segmentation) and the features or products they would prefer to use.

Since product managers, in particular, are at the nexus between the product development and marketing components of any enterprise, the product metrics for determining success or failure are co-mingled with those frequently used within marketing departments. Regardless of your software product, e.g., eCommerce, API products, subscription SaaS products or mobile apps, there are essential questions to focus on: “Is the product successful? If so, why? If not, why not? What defines success in terms of revenue, cost, and our general and specific goals for the enterprise?”

The metrics listed below should, ultimately, align with established enterprise objectives. Alternatively, if you’re a newly minted startup, the list will help you create a baseline measure to track three critical areas of product performance: business, technical, and customer engagement. This isn’t meant to be an exhaustive list of every possible metric. For example, an eCommerce product category would likely have a “shopping cart abandonment” metric, whereas API products may include a failure rate for API calls.

However, every product manager should know which customers are generating the most revenue, which products or features have the most technical issues, which customers are promoting your product vs. detractors, and if potential customers are deterred by the design and content of your landing pages. Your software product may be the most well designed and useful tool on the market, but if your presentation is inadequate (or unclear), then customers will quickly move on to a competitor.

Key Business Metrics

For consumer-facing products, the main goal for your business metrics analysis is to determine which products and customers are generating the most revenue for the least cost. By all means, over time, your business metrics list may grow. But, the following analyses should remain as your primary go-to calculations.

  • Customer Acquisition Cost (CAC): How much are you spending to convince new customers to buy your software or subscribe to your SaaS? This calculation is a relatively simple ratio based on a given period of time, e.g., 1 month, 3 months, 6 months, and so forth. Your optimal CAC will depend on several factors such as your business model, how long the product has been on the market, whether you’re trying to enter a new market, and the number of competitors vying for the same customer segment (to name just a few). Ideally, the goal here is to move the cost factor to the absolute lowest value possible without sacrificing the quality of your product and marketing efforts.
  • Lifetime Value (LTV): How much revenue will your customers generate over the lifetime of their relationship with your enterprise? Are there specific products that can influence an increase in customer LTV? Might there be new products or features that can boost LTV?
  • Monthly Recurring Revenue (MRR): If your product is a one-off purchase rather than subscription-based, this may not be applicable. For SaaS products, MRR provides an average of the recurring revenue which can further be segmented into different categories such as new subscriptions, customers who have upgraded or downgraded their subscription levels, and customers who have canceled their subscription (see Churn Rate below).
  • Annual Recurring Revenue (ARR): Similar to MRR, except it gives you a yearly average. While you can use ARR as a forecast for future revenue projections (taking into account the churn rate) beyond the next 12 months, you should only include multi-year customer contracts to calculate the likely ARR for two or more years in advance.
  • Average Revenue per User (ARPU): How much is each customer, on average, spending? Averages can be skewed due to outliers, e.g., Customer A is a Tier 1 enterprise who spends 10 times more than Customer B. So, view this as a starting metric and then drill down into ARPU per customer segments.
  • Average Revenue per Daily Active User (ARPDAU): This is a time-constrained version of the ARPU and applies more directly to SaaS-based software products. But, it will give you insight into who is using which products with greater frequency.
  • Growth Rate: Are you acquiring more customers year over year (or month over month)? Which software product (assuming you have more than one) is attracting new customers? Who are the new customers in terms of industry and tier level?

Key Technology Metrics

Nothing is more frustrating than when someone tries to use your software product, and it crashes. Granted, putting user error aside for a moment, there are absolutely no perfect products on the market. At some point, users are going to experience a buggy release (despite the quest for this not to occur -- ever). On a positive note, the following metrics -- when analyzed on a frequent basis, e.g., weekly, monthly, quarterly, yearly -- will provide you with the information needed to make quick and accurate decisions about how to solve the most pressing issues at hand.

  • Number of Customer Support Tickets Opened: Is there a specific product release that’s causing an uptick in the number of customer support tickets opened? What are their complaints? Is there a particular issue that’s the main source of customer attrition?
  • Number of Customer Support Tickets Closed: This metric will also inform you as to the efficiency of your customer support or IT team. Did they solve the user's issue? Was CS/IT able to resolve it? If not, why not? Was CS able to retain the customer or was the customer so dissatisfied that they churned? How many support tickets remain open? What percentage of opened support tickets are successfully resolved (closed)?
  • Number of Bugs Reported per Feature (or release): This is a more granular view of potentially problematic areas. The goal here is to be proactive rather than reactive. Do your MVPs require more time before they are released?

Key Marketing Engagement Metrics

Along with the technology metrics, marketing engagement data can be used to dig deeper into the psychology of your customers from both a macro (entire customer population) and micro (customer segments) perspective. Engagement metrics aren’t the sole domain of your marketing department. Even if you have only one product, as consumer preferences shift, and new technologies emerge, their engagement behaviors will reveal important details about your product’s success or areas for improvement.

  • Net Promoter Score: Who is promoting your product? How likely are they to recommend your product to someone else? Adding a sentiment analysis component to the NPS calculation is highly recommended (if users are leaving comments as to the reason for their choosing a certain score).
  • Churn Rate: What percentage of your total user base has discontinued using or subscribing to your software product? You will always have a churn rate as it is impossible to please every single user all of the time. On the flip side, your churn rate is likely to increase along with your growth rate.
  • Conversion Ratio: How many website visitors actually follow through with a purchase? Or how many free trials turn into paid subscriptions? If free trials aren’t providing enough value to convert users into paid subscribers at a decent rate, your product may be in trouble.
  • Organic vs. Paid Acquisition: This metric ties into CAC. Which channel is providing the most return on your marketing efforts? Again, your product may be the best in its class, but if it’s costing you copious amounts of paid advertising and you have high churn rates relative to your growth, then something is amiss.
  • Marketing Website Bounce Rate: Are customers taking the time to read about your product via the landing pages? Or are they quickly leaving your website? A bounce rate of roughly 40% is the average. But, as that number creeps up, it signals an issue that needs to be investigated.
  • Marketing Website Dwell Time: How long are visitors (especially new ones) spending on your website? Which pages do they spend more time viewing? Usually, but not always, longer dwell times translate into a higher likelihood of a product purchase.

Each of the aforementioned metrics will give you a head start on better understanding your customers and the perceived quality of your product. Although they are described separately, they are all interrelated. As your enterprise evolves, your metric targets will also change. But, this will be far easier to measure and track if you maintain a checklist of what to monitor and when.

Want more? Head back to the Tivix blog