How to properly measure product success
What does success look like for you? What is the moment you feel like you have succeeded at your job? It could be when you get promoted. Perhaps when you have more responsibility and are given more important tasks. Is success defined as more creativity and the freedom to do what you love? Each person has a different vision of success, so we need a North Star to help us determine if we are moving closer or farther from our goals.
The most important measure of business success is its monetary value. Revenue alone is not enough to build a product that will bring value to your customers and company. What is the best way for a business to find its North Star. What could it be?
How to measure product success
Hinge is a great alternative to Tinder. This dating app was created to replace Tinder’s fast-swiping culture. It is intended to be deleted. For the National Day of Unplugging in March 2022, they gave away US $100 to couples who had their accounts disabled and then went on a date. Hinge considers the number of users who leave an app a measure of success. This is called “good churn” because users leave when they find what they need on the app.
Churn Rate has been traditionally used to measure customer dissatisfaction or the appearance of a cheaper product on the market. The most superficial dating apps focus on the number of active users or downloads. They’re not wrong. Every app, website and software product has its own goals, understanding, and success criteria. This determines the metrics they will use to measure success. Before we get into the details of product management terminology, let us quickly recap what metrics are.
Metrics and Key Performance Indicators (KPIs).
Product managers take great care in selecting the right metrics to determine everything, from what updates to make to which marketing strategy to use for promotion. We now get to the point. What are your product metrics?
Determine Product Metrics
Let’s discuss your goals. Your goals are steps that you have to take in order to achieve your business strategy. Sometimes, your goal is to simply grow and acquire more users. It is important to understand how effective your promotions are, where they are coming from and what it costs to attract them. You also need to understand how your current users interact with the product.
Hinge’s mission is to help you get out of the swiping loop and find you a partner. Its goals are to find better matches. Are you open to long, meaningful conversations? Have you ever been on a date or had long conversations? These goals, which can be translated into metrics, help Hinge determine how their matching algorithm is working and whether they should make changes. They would then check the metrics to ensure that it was worthwhile. Every product must earn money, so it is important to keep costs low. Your stakeholders will also be focusing on financial indicators and user satisfaction.
Vine was a video sharing app that defined culture. It was a dominant app on the internet during the mid-2010s. However, it was closed down in 2017 because of insufficient monetization. With metrics attached, these three goals are fundamental. How can you be sure you are succeeding in each of these areas.
Metrics for User Acquisition
Traffic is the most important acquisition metric. App traffic is a great indicator of whether your marketing strategy is effective or not. If high traffic to an ecommerce, travel or service provider website doesn’t lead to conversions, this typically means that visitors leave after only one page. Either you’re not attracting the right customers or your user experience is poor. A high number of pages per session can also indicate that your content and functionality are useful, engaging, and correctly targeted.
Customer Lifetime Value
Customer lifetime worth is the ultimate measure for customer experience. Multiplying the average sale value by the total number of transactions and average customer lifetime will give you the average value. You can calculate how much to invest in customer retention and acquisition if you consider that a customer stops using the product six months prior.
For example, imagine you’re a niche online bookstore. A Facebook advertising campaign costs US $100. This will bring you about 200 new customers. At 50 cents per customer, this means you only have to spend 50 cents. The average customer purchases 10 books per year and has been with you at least two years. You earn 10% on every book you sell. This is 40 dollars per customer that you make over the course of their lifetime. This is the lifetime value of your customer. This is a positive sign that your advertising efforts are paying off so it’s worth continuing to invest in them. If all 200 people purchased one book, and they didn’t return it, that would leave you with about two dollars in profit. You’d also need to run another campaign every month to keep your company afloat.
You should focus on customer retention if your customer lifetime value is low. This can be done by improving customer satisfaction and marketing, as well as attractive discounts. All of this will ensure that the customers you have already attracted continue to bring value. Here is where we turn our attention to user engagement metrics.
User Engagement Metrics
User engagement shows how users choose to spend their time using your product. Engagement, which includes scrolling, liking, and writing comments, is correlated with loyalty and retention. Mobile apps, online games, as well as social networks, often boast large numbers of active users.
Your website or app’s active users are people who take valuable actions. Facebook’s daily active user amounts to an average of 1.82 billion people. This is a measure of your growth. However, you can use it to show a larger picture. This metric shows how stickiness your product is. An acceptable ratio is at least 20%. Insanely popular products like TikTok amounts to 50%
Churn is closely linked to customer satisfaction and engagement. However, it is not sophisticated enough to tell you why customers stay, as we have already discussed. Do they love the product? Is it because they aren’t able to achieve their original goal? You must ask. These questions are likely to have been answered before. How likely are you to recommend this product? If you answered less than seven, it is considered as bad as one. This metric is Net Promoter score. These answers allow product managers to divide respondents into three user groups.
It’s a good sign if you have more promoters then detractors. It’s also a great success if there are twice as many promoters than detractors. The net promoter score doesn’t have to be nuanced. You don’t know why someone wouldn’t recommend your product if you don’t ask the right questions. Companies often use customer satisfaction scores.
Customer Satisfaction Score
A customer satisfaction rating lets you ask multiple questions, and narrow them or broaden them as much as you like. You can ask them about their satisfaction with the product, or the unique benefits of one feature. To improve the user experience, ask them after the download. Ask customers to rate how easy it was for them to find the information they need or complete their tasks.
It is important to know how long they stay on these pages. Hinge considers it a success if users spend more time messaging than they do swiping. Tinder is a social network where swipes are the most important part of the experience. This requires attention, especially when you have to pay for ads and additional features that can only be found on the main page. No matter how engaged and happy your users are with the product, its survival and success will depend on its ability to sustain itself.
Software products, especially those that operate on a subscription model, must forecast the revenue each user will generate over the long-term. Monthly recurring revenue is one such important metric.
MRR allows to look at different customer groups — those that joined this month and those that were downgraded or upgraded to another payment method. The ones who churned are also included. You can calculate the average revenue per user by dividing MRR and the total users. Optimizing your pricing is a key metric to understand which subscription tiers generate the highest revenue.
Netflix’s ARPU numbers have an impact on its regular price changes. Every year, Netflix shares streaming space to an increasing number players. If subscribers are adding slowly and their ARPU does not increase, this means that they are underpaying for the service. Netflix is exploring raising the fee in some regions by one or two dollars to balance out this metric.
You should have your North Star metrics available at all times to provide information on product successes and failures. You should choose the ones that best represent your business model, customer relationships, and goals. If your product develops in a different way than you expected, don’t be afraid of changing them. You will be able to make better decisions, with more data and less guesswork, using the system of metrics. This will help you create a better product, greater value, and greater success for everyone.
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