Product Metrics: What are they, why are they important and which ones should you know?

What are Product Metrics?

Before we jump into product metrics, let’s first ask — what is a metric?

A metric is anything that can be quantified and measured in a specific number, and hence be compared over time.

When we have a product, we want it to deliver some value to the users. Understanding user behavior and how they use the product can tell us if they are getting the value or not? We study this user behavior by mapping the product value to specific metrics that we call Product Metrics.

Product metrics refer to a set of data and indicators that reveal details about how users are interacting and responding to your product. Tracking these metrics can answer questions such as which features customers are using most, how long they are using a feature, what makes them stop using it, etc.

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But why should we use them?

Without tracking metrics in product management, your product team would miss out on meaningful insight into its customers. While surveys and customer interviews can provide a glimpse into a customer’s perception of the product, behavioral data can reveal trends and missed opportunities.

When building a product, conflicting opinions tend to disrupt the development process. By providing hard data without emotional bias, you can ensure your product team is building features that appeal to users while still maintaining business goals.

Can product value always be measured and analyzed?

Yes. No matter how “fuzzy” or intangible the value may appear, you can apply quantitative measurements to any product. For example, while it’s tough to gauge precisely how much fun and entertainment users are getting from a video streaming service, you can measure how many videos they watch weekly, or how much time is spent on each.

Similarly, while finding a 100% precise way of measuring anxiety reduction in users of a meditation app might seem difficult without a qualitative study, you can measure completion rates for meditation sessions, and the percentage of people coming back each week to use the app again and again. In addition, you can observe in what ways people who do come back behave differently from those who don’t.

A helpful tool in measuring value for your product is defining the so-called “value moments” — user events or actions that indicate that a person is getting value out of your product. Your product’s value moment is an event, an action, or a series of events and actions that represent the moment that a user found value in your product. Here are a few examples of value moments:

1. For a dating app, the value moment could be liking a photo or sending a message
2. For a food delivery app, the value moment could be placing an order.
3. For a therapy app, it could be to take a therapy session.

Generally, we try to quantify these value moments and measure these as metrics. These become our key performance indicators (KPIs).

The Three Types of Metrics

If we have to distribute the metrics into categories, we will do it in this way:

The North Star Metric

A north star metric is the key measure of success for the product team in a company. It defines the relationship between the customer problems that the product team is trying to solve and the revenue that the business aims to generate by doing so.

This serves three critical purposes in any company:

• It gives your organization clarity and alignment on what the product team needs to be optimizing for and what can be traded off.
• It communicates the product organizations’ impact and progress to the rest of the company — resulting in more support and acceleration of strategic product initiatives.
• Most importantly, it holds product accountable to an outcome.

To qualify as a “North Star,” a metric must do three things: lead to revenue, reflect customer value, and measure progress.

Instagram’s north star metric could be Monthly Active Users, Spotify’s north star metrics can be total time spent listening.

Primary Metrics/ L1 Metrics

1. Primary metrics depict the desired outcome of a particular product, team or initiative. This is unlike the NSM, which represents the desired outcome of the company as a whole.
2. They should either directly contribute to the NSM or act as a check to make sure the product is growing in a healthy direction.
3. The primary metric can be more valuable than the NSM in the short-term because of its narrower focus, tighter feedback loop and more immediate association with the specific product. Moreover, the primary metric ultimately feeds into the NSM.

Supporting Metrics/ L2 Metrics

1. Supporting metrics are indicators that the NSM (or primary metric) is moving in the right direction.
2. They are particularly useful as leading indicators to your NSM i.e. give you an idea of how your NSM will change before your NSM actually changes. For example — a high email open rate will correlate to (and precede) a large number of high quality users joining the platform.
3. They also tell you where your efforts to move your NSM may be falling short. In the Amazon example, if you’re sending 1000 emails a day, but only 10 of those emails are being opened, then the quality of your emails may need some work.

Metrics that you should know

Awareness Metrics:

1. How many people are interacting with your product?
2. Example: Number of website visits, social media metrics (number of likes, shares, impressions, reach), time spent on a website, email open rate

Acquisition Metrics:

1. How many people are interacting with your product?
2. Example: Number of leads, number of qualified leads, sign ups, downloads, install, chatbot interactions

Activation Metrics:

1. How many people are realizing the value of your product?
2. Example: Number of connections made, number of times an action is performed, number of steps completed

Engagement Metrics:

1. What is the breadth and frequency of user engagement?
2. Example: Daily, weekly and monthly active users, time spent in a session, session frequency, actions taken in the product

Revenue Metrics:

1. How many people are paying for your product?
2. Example: % of paid customers; average revenue per customer; conversion rate of trial to paid customers; number of transactions completed; shopping cart abandonment rates; ad-metrics like click-through-rate and conversion rate (crucial for ads based businesses)

Retention Metrics:

1. How many users are returning to your product?
2. Example: % of users coming back to your platform each day, month, year; churn rates; customer lifetime value

Referral Metrics:

1. How many customers are becoming advocates?
2. Example: Net Promoter Score, viral coefficient i.e. the average number of people that your users refer you to

Important metrics you should know