15 April 2020  4 min read

How to measure the success of digital products?

a graph with the chart presenting product performance

There is no doubt - if you look after the product launch and growth, you need to know how the product is performing. Product metrics help you to see if the ball is rolling or not. 

There is a lot of metrics in the digital world, and I bet you can probably list one or two hundreds of them. That's not the point.

The point is to have two, maximum four on your whiteboard, not twenty or thirty. You want to have a gander at the dashboard and immediately learn how is your digital product performing.

Let's have a look, how to make sure your product management metrics are appropriately selected, and you measure enough, not everything. 

Product metrics relate to your business model. 

To choose the right product success metrics, you need to make sure your business model exists and is available as the document. One of the best ways to structure it is to build the business model canvas.

I assume you have one, and your value proposition is up to date. This is where you need to start by linking your value proposition to the product metrics. 

Related: Validating and designing a value proposition

One of my customers helps home appliances manufacturers to make their products discoverable on e-commerce platforms. The value proposition is straightforward. The manufacturer makes dishwashers, washing machines, and microwaves, my customer makes them available for purchase on most eCommerce sites, with one click. 

In this situation, it is quite easy to list product metrics, which will tell the manufacturer if my customer technology converts or not. 

Number of clicks, minutes spent on reading a product description, number of items added to baskets, number of transactions, average purchase value - all of these product numbers are important to track the performance for my customer.

All of them?

Well. It depends on what is the business goal of the product. Understanding this makes the KPIs prioritization possible. 

If your product directly generates revenue, then the revenue is probably the most critical metric or at least an important one. 

Let's have a look at my customer product. Their goal is to make manufacturers products available on the eCommerce platforms quickly. Speed and range matter here a lot. All the metrics associated with speed and product availability are moving to the top of the ladder. It is because the value proposition, which is a foundation of their business models, vows that. 

Translate value proposition to specific product management metrics

Let's have a look at LinkedIn now. If you have a LinkedIn profile, you know how it is easy to find you. Recruiters love that. This is part of the value proposition, which both sides enjoy. How to translate it to metrics? 

It is effortless. 

Let's have a look.

The number of profiles is one metric; a number of registered recruiters are the other metrics. The number of searches conducted by recruiters is the third, the most critical parameters. By tracking these numbers, it is easy to measure the success of the LinkedIn product. 

I have found it very powerful to connect value proposition with the product goals and then define the most critical metrics. 

Funnel never lies. 

Do you care about Facebook ping speed, number of users logged in in the morning, or how many virtual servers they hire to serve users? No, you don't. Your customers don't care about your infrastructure, technology architecture, and other technological issues. They don't have to understand this, neither track it. Technical performance indicators bother only technological people, and this is good. 

Why did I mention this? Some companies are tracking not what they should. CEOs spend money on advanced technologies or software, and then start to follow the technical indicators. I think it is not valid, as it steals the focus. Instead, every minute invested in funnel analysis is a properly invested minute. Funnel never lies. 

Acquisition

Let me quickly explain what I mean by "funnel." If your company sells food for dogs, you probably spend money on Google Ads and Facebook Ads. This is your acquisition level. You might also run a blog, as I do, and share content to help pet owners properly take care of their beauties. This is another puzzle in your acquisition process. 

Activation

Now, a user consumed your piece of content and came to your online store. She is browsing and searching, and finally, she set up the account. Great! You have activation in place. She activated the account. This is your activation level. 

Retention and referral

Now, you want the user to come back. Here is the retention asking for the attention. Let's say you release a coupon. "Come back within 30 days, and you will get the 25% discount". She came back. Your retention product metrics changed in plus. She is so happy, and she asked her boyfriend to join your website. Referral worked. Your funnel sees more referrals coming. It is good. 

Growth

More retention, combined with more referrals, always bring more growth. It doesn't matter what the growth means to you, revenue or downloads, this particular KPI is climbing up. 

Don't measure everything that can be measured

I hope I did a great job and explained how to conduct the process of picking up the most crucial product metrics. I still didn't name the particular metrics, but I gave you strategic hints. They will help you to pay attention to these processes and these actions, which influence your business the most. 

Please remember, the value proposition is the most critical part of any business model. Your product success depends on how the value proposition is strong. 

Number two is your funnel. Every business needs to respect the funnel. Pick up these actions which drive your funnel, and measure them. For LinkedIn, the funnel looks differently than for Apple Music, but everybody needs to start at the acquisition level and give people reasons to influence the company growth. 

Look for metrics in those buckets: value proposition, and the funnel. 

Key product metrics

Here is the list of metrics, which are relevant to most of the digital products on the planet. I picked up the most popular metrics, and not specialized ones. When I run AI-powered product development, I use a lot of specialized metrics.

Please put your value proposition and funnel glasses now, and filter these metrics which track what matters to your digital business.

Monthly recurring revenue (MRR)

These metrics measure a product's total revenue in one month. To determine them, consider the MRR at the beginning of the month, add gained revenue from new acquisitions, and deduct revenue from lost customers.

The average revenue per user (ARPU)

These metrics help you to understand the level of revenue generated per user monthly or annually. It helps to grasp the idea of retention. If the pool of users buys with you regularly, it means the ARPU increases in time.

Customer Lifetime Value (CLTV or LTV)

These measurements allow you to calculate how much money a user generates in the long term. Track LTV to determine distribution channels, purchasing cycles, retention strategies. If you sell through the third party, LTV can help you to understand if it would be better to open your own eCommerce store. 

Customer Acquisition Cost (CAC)

Imagine you sum up marketing spendings, sales teamwork, advertising, new features for Christmas, and then check how many users all the effort acquired. You will learn about your customer acquisition cost. This is one of my favorites metrics. As you probably see, it sits on the top of the funnel. It measures how effective you are doors. If you run a beautiful restaurant, with a fantastic kitchen and menu, and nobody orders from you, your acquisition sucks. That means you might have a great product, but the acquisition doesn't work. If you increase budgets for marketing and leave the rest as it is, your CAC will increase, which is not good. The same happens to apps. A beautiful app, which has zero downloads, will have poor CAC.

Daily / Monthly active users

a number of active users per day/month. It is a vital product metric, as it shows whether users appreciate your value proposition. 

Session length

a KPI is the easiest way to track digital product usage. The best way to measure it is to take the total time users spend in your product, divide it by a number of users, and you will see how your product performs. If you read Forbes magazine for 2 hours per week, and a single session is 1 hour, it means the product books your life for 1 hour. If you compare this time to the industry average, you can tell a lot about your product success.

Bounce rate

I came, I saw, I run away. This is the bounce rate. I have heard from friends, your pet food online store is excellent, so I decided to visit. I found it a disappointing experience, and for this reason, I spent 20 seconds, and I will never come back. Do you remember the example of my customer, which helps manufacturers to make their products discoverable? They track the bounce rate like crazy. 

Retention rate

Customer retention rate (CRR) is the percentage of customers who stayed with the company after a specific time, meaning they come back frequently. Based on this KPI, you can learn if and for how long you'll be able to retain new uses when your customer retention rate is rising. In case it fell, you can be on the lookout for a new competitor or a problem in customer service.

Churn rate

They deleted the account or not coming back - it means the churn is growing. There are two types of churn metrics: customer churn (number of users who dropped paid subscriptions) and revenue churn (amount of revenue lost due to customer churn). To measure customer churn rate, calculate the number of users lost during a specific time range, and divide it by the number of users at the beginning of this time span.

Conclusion

I have picked up only several, the most popular metrics for you. Please look for more online, as the list is endless. I believe that listing product metrics is the easiest part of the run, and this is where you shouldn't start. 

The holy grail of the digital product measurement is in picking up the most critical KPIs. It brings laser focus on what matters to the product growth. Your business model is where I believe you should start.

Related: Business model design, redesign, and test in a structured way

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