Mastering Metrics: A Comprehensive Guide to KPIs in Product Management
Are you a seasoned product manager or a newbie just beginning to establish yourself in this dynamic role?
Knowing what metrics to track and how to evaluate them efficiently is essential to success. This is even more critical in this age where SaaS products are becoming more data-driven.
Product management metrics are data elements you can use to measure, track, and evaluate team performance and determine product success.
In this piece, we will discuss product management KPIs in detail, guide you on choosing the right ones to track, and show you how metrics can shape your product roadmap for success.
Key KPIs and metrics for product management
The key KPIs and metrics can vary depending on a company’s product type and structure. Product managers must choose KPIs aligning with organizational goals and strategies, whether or not they specialize in product engineering, design, marketing, and customer relationships.
To help you achieve your objectives, we’ve compiled a list of product management KPIs and metrics that you need to track. They are as follows:
Product quality KPIs
Product quality KPIs help you identify trends and potential risks in delivering excellent customer experience.
As a product manager, you must understand how to balance quality and delivery schedules, bearing in mind that a single negative user experience affecting just one user can significantly impact your organization.
The world is a global village, and customers can easily share their negative and positive experiences on social media platforms and review sites.
Hence, product quality KPIs should be given top priority.
Some metrics to measure under this KPI include:
Testing and velocity KPI
Testing lies at the core of product releases. Product managers can monitor various KPIs, including the number of tests completed successfully and the percentage of automated tests.
Collaborating with the QA and testing team allows the product team to validate features and system increments while setting goals for ongoing enhancement.
One crucial metric in this realm is the velocity KPI, which provides insights into the efficiency of your testing processes.
Here’s how it is calculated:
Velocity KPI = automated tests + manual tests.
Defects and detection effectiveness
Testing defects and detection effectiveness can be done in a number of ways. For instance, you can track defect rate KPI, which is the number of times a test failed. Others include active defects, rejected, and severe defects.
While ensuring you test for defects, evaluating how well your team identifies and addresses defects is crucial. This is where the Defect Detection Effectiveness (DDE) metric comes into play.
Defect Detection Effectiveness (DDE) measures the percentage of defects your team successfully catches compared to the total defects of the product.
If the Defect Detection Effectiveness (DDE) increases over time, this is a promising sign that your team is efficiently identifying and rectifying issues before product release.
Here’s how to calculate it:
DDE = (Number of Defects discovered by Team / Total Defects discovered by Team and End Users) x 100.
Support ticket escalations
Support tickets are critical metrics that will help you keep an eye on product quality after release or when there is a significant change or product update.
Typically, tickets are escalated when initial support attempts fail to resolve an issue.
Escalations encompass various communication channels, including customer chats, calls, tweets, and blog comments. While these sources contribute to the escalation count, tracking them can be more challenging.
When the escalation rate climbs, it should trigger your attention as a product manager. It may signal ongoing issues with a particular feature or the product as a whole, impacting customer satisfaction.
To monitor the support escalation rate, use this formula:
Support Escalation Rate = (Number of Tickets Escalated from First Tier / Total Number of Support Tickets).
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Revenue and conversion KPIs
Revenue and conversion KPIs are at the heart of any business’s success. These key performance indicators provide companies and PDMs with critical insights into their product’s financial health and ability to convert users into paying customers.
Some metrics under this KPI to measure include:
Monthly recurring revenue
Monthly recurring revenue (MRR) is a key performance indicator that helps track a company's predictable income stream by month, enabling product managers to predict short-term budget needs and adjust marketing spend, thereby preventing unexpected end-of-year surprises.
MRR is useful for subscription-based businesses, assessing revenue stability, cash flow, and long-term sustainability.
Here’s how to calculate MRR:
Average revenue per user × Total number of active users = Monthly recurring revenue
A higher MRR indicates a more stable business.
Percentage of revenue from new products
This KPI tracks the total revenue generated by selling new items. It helps you see how well your new product contributes to the company’s overall performance.
If your new product isn’t making much impact, consider publishing a product update or conducting more market research.
Here's the formula:
Percentage of revenue from new products = total revenue generated ÷ revenue generated from the new products.
Average revenue per user
This KPI tracks the amount of money you can expect to make from each active customer or user. Companies typically compute this monthly, although it can also be done yearly or quarterly.
This KPI is an important metric that can help SaaS companies determine whether or not they’re targeting the right audience and if they’ve priced their product correctly.
Here’s the formula:
Average revenue per user = total revenue generated by the product ÷ the number of active users.
Customer Acquisition Cost (CAC)
This metric is one of the most important SaaS metrics a product manager should consider. It calculates the costs of acquiring new consumers.
Customer acquisition costs cover marketing campaigns, sales teamwork, human resources, and advertising expenditures.
This marketing metric can help Product Managers (PDM) evaluate how much they should spend on customer acquisition.
You can also utilize customer acquisition costs to determine whether it's time to switch client acquisition channels or reassess your product marketing strategy and pricing model.
Here’s how you can calculate CAC:
Customer acquisition cost = sales and marketing spending for a period of time ÷ total number of customers acquired over a period of time.
Generally, conversion rate is a sales and marketing metric. However, it can also be an essential metric product managers can track.
Consider those apps that offer a free trial period, where users have a limited time to explore the product’s potential. After the trial, users can decide to continue with the app or move on. This is precisely what your conversion rate as a Product Manager can measure.
It’s a metric that tracks the time it takes free trial users to convert into paying customers.
In essence, it reveals how effective your product or service is at convincing users to leap from a free trial to a paid subscription.
Understanding your conversion rate enables you to anticipate the number of paying customers you can expect from a specific pool of free trial users.
Here is how to calculate it:
Conversion Rate = (Number of Paying Customers / Number of Trial Users).
Customer lifetime value
Customer lifetime value (CLV) is the total revenue a business generates from customers over their entire time with the company.
This metric helps you to determine how much your customers are worth to your business financially and how much future revenue you can expect to generate from new users if they remain loyal.
For instance, if a customer has been with your company for five years and spends $20,000 per year, the customer's lifetime value is $100,000.
Here’s how to calculate CLTV:
Customer lifetime value = average revenue per customer x average customer lifetime.
A High CLV indicates customer loyalty, while a low CLV suggests an inability to retain customers, potentially requiring product improvements.
A study by Salesforce states that 89% of customers are more willing to make another purchase after receiving good customer service. This shows that guaranteeing a positive experience for your customers anytime they interact with your product is crucial.
Customers are the lifeblood of any business, and understanding their behavior and satisfaction is paramount for product management.
However, certain KPIs must be tracked to determine how happy or not your customers are with your product.
Let’s look at the key performance indicators (KPIs) that offer valuable insights into your customers’ experiences and interactions with your product.
Customer satisfaction is a key metric for assessing customer satisfaction with your product or service. It can be determined by sending surveys targeting areas for improvement.
For example, the survey could ask them to rate the level of fulfillment derived from a product on a scale of 1 - 5, with 1 indicating dissatisfied and 5 being completely satisfied.
If you want to acquire new customers, keep them, and maximize their lifetime value, you cannot afford not to track customer satisfaction metrics.
Here’s how to calculate Customer satisfaction:
Customer satisfaction = the number of positive responses ÷ the number of total responses x 100.
Customer satisfaction (CSAT) evaluates satisfaction with a specific feature, unlike the Net Promoter Score, which we will discuss shortly.
Retention rate measures the number of customers that continue to do business with your company for the long term. It indicates your company’s capacity to entice users to make repeat purchases and spend more cash on your product over time.
It’s an intelligent move for companies to prioritize current customers because they have already invested time, money, and effort in gaining them.
Furthermore, current customers are more likely to explore a new product, upgrade a plan, or provide feedback. Focusing on retention may make more financial sense for a company.
Here is how to calculate the Retention Rate:
Retention rate = Customers at the end of the specific period – new customers ÷ customers at the start of the specific period x 100.
The Churn rate is the percentage of customers who leave a company over a specific period, inversely affecting customer retention.
Churn rate helps you identify issues with usability, customer experience, price, or product-market fit.
High churn rates, especially compounding ones, suggest the need for improved retention strategies.
As a product manager, churn rate is a metric you should take seriously, as it could cost you five times more to acquire new customers.
Hence, if you discover your churn rate is high, do not hesitate to find out why and keep a close eye on these numbers.
Here is how to calculate the churn rate:
Churn rate = customers lost ÷ total number of customers.
Net promoter score
NPS (Net promoter score) is a helpful tool that is used to measure customer satisfaction and how likely they are to recommend your brand or product to someone else, making it a pivotal indicator of your product’s revenue potential
Depending on your users/customers’ NPS score, they can be categorized into Promoters, Passives, and Detractors.
Detractors (Score 0-6) need proactive engagement to avoid churn. Ideally, you should contact these users to review their complaints and show them you care about resolving their issues.
Passives (Score 7-8) are lower priority, yet they are nonetheless vulnerable to churn. You want to ensure the odds are in your favor because it might go either way.
This category of users, too, should be contacted so you can address how you can improve their experience with your product and point them in the direction of any resources that may be useful to them.
Promoters (Score 9-10) are superfans and likely to recommend your brand. Engaging them with exclusive opportunities and beta testing strengthens their affinity.
NPS scores can be used alongside other surveys like Customer satisfaction score (CSAT) and CES to understand customer sentiment and ensure product success.
Here’s how to calculate NPS:
NPS = percentage of promoters - the percentage of detractors.
User engagement KPIs
User engagement is a cornerstone of a successful product. These metrics measure the level of interaction and satisfaction among your user base.
Some metrics to measure whether your customers are engaged include:
Daily active user and monthly active user count
Product growth is primarily measured by the number of active users, not just revenue. Metrics like Daily Active User (DAU) and Monthly Active User (MAU) track unique users who visit a digital product daily or monthly.
This metric is valuable as it indicates if a product is engaging enough.
Here’s how to calculate it:
Daily active user = the number of daily active users ÷ total number of daily active users.
Monthly active user = the number of monthly active users ÷ total number of monthly active users.
This is the amount of time a user spends on a product, from when they launched it to when they abandoned it. It tells you how long consumers use your product.
This metric is crucial since it demonstrates the worth of your product's content and can affect customer retention rate and customer loyalty.
Here’s how to calculate it:
Session duration = (take the average of the answer): the total time users spend on your product ÷ the number of users.
Number of user actions per session
Tracking the number of user actions per session is a vital KPI that helps product managers track users’ engagement on their website and app.
This KPI is crucial as it helps you understand the popularity of a feature, compares churned and retained customers, and helps in A/B testing to make decisions about features, UX elements, and customer behavior.
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How to choose the right KPI for your product
Choosing the right KPI for your product requires a collaborative and thoughtful approach to ensure that it provides meaningful insights and drives continuous improvement in product management.
Here’s where to start:
Clearly define business goals
To choose the right product metrics, clearly outline your product management goals. What do you want to achieve? Are you aiming to increase active users, reduce customer churn, or improve customer satisfaction?
Clearly defining your goal will point you to the right KPIs.
Identify relevant metrics
After identifying your goals, the next step is to identify key metrics for measuring performance. There are different performance metrics, but they are not all equally important.
So, based on your goals, select the most relevant metrics to your product management objectives and strategy.
Selecting the right KPI for your goals can be daunting, requiring a lot of brainstorming with teams and stakeholders.
This complex process can take up time that could have been spent on revenue-generating activities.
Then, there’s the challenge of selecting the wrong KPIs. Manually selecting KPIs comes with the risk of choosing less impactful KPIs.
This leads to focusing on data metrics irrelevant to your goals, which could harm your business.
If you are in this situation, Kippy’s Ai suggestion can help you find the perfect KPIs and OKRs that align with your objectives in seconds.
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Make your KPIs SMART
Next, make sure the selected KPIs are SMART. That is, ensure they are specific, Measurable, Achievable, Relevant, and Timebound.
For example, instead of having a goal that says “increase active users,” you can define a SMART target like “increase monthly active users by 20% by the next quarter.”
How do metrics shape the product roadmap?
Product management metrics ensure your product delivers the expected user value and achieves your desired business outcome.
Product metrics such as those discussed above can help shape your company’s product roadmap in the following ways:
Metrics can help you determine which feature is most critical to users of your product.
For example, if user engagement metrics show that a specific feature is underutilized, it can become a top priority for improvement in your roadmap.
Setting a benchmark that aligns with product objectives and goals
Metrics can help you determine a benchmark that aligns with your product objectives and goals, whether increasing user retention or boosting conversion rates.
You can use historical data or consult industry reports to find the standard benchmark for your selected KPIs using data from other organizations in your industry.
Identifying pain points
Tracking product metrics can help you quickly determine pain points and bottlenecks in your product's user journey.
High bounce rates, low session durations, or high churn rates can signal areas that need immediate attention in your roadmap.
The primary function of product management KPIs is to track product performance. These metrics provide a quantifiable way to measure the team’s performance toward your goals in real time and adjust when needed.
Without product KPIs, you and your team will lack clarity about whether product roadmap execution strategies produce the desired results.
Addressing critical issues
Tracking metrics can help you uncover critical issues that require immediate action. For instance, if you have an escalating support ticket related to a specific problem, it becomes a roadmap priority to address the underlying issue.
Data-driven decision making
Metrics help you make data-driven decisions within your product team.
For example, when you track KPIs and identify the product management strategy that improves user experience and revenue, you may allocate more of your budget to them to optimize that strategy.
A product roadmap is dynamic and changes over time. Metrics support iterative development by offering continuous input and insights.
As new data becomes available or your product matures, metrics help you modify your roadmap.
Takeaway: Measure product management KPIs and boost product delivery success
Product management KPIs measure performance and behavior and help you get feedback on your product to ensure it delivers value and solves problems.
The product management KPIs discussed above are some of the top metrics managers should track to ensure you and your team maximize efforts.
Success in product management begins with having clear goals and knowing the right KPIs to track.
Manually selecting KPIs is a time-consuming and demanding task. Worse, it exposes you to the danger of choosing wrong and ineffective KPIs.
If you have been struggling with determining which KPIs to track, worry not. Our intelligent tool streamlines this process for you, providing you with infinite AI-generated KPIs that align with your team and strategic goals so you can correctly track and evaluate performance.
Ready to start measuring product management KPIs and guaranteeing product delivery success? Schedule an interactive demo today.