Metrics & Analytics for a Product
A team can build a great product with excellent features, superb UI/UX and happy customers. However, for a business all of these things won’t matter unless we measure it through some set of metrics.
A product is a digital asset and to measure it’s performance, we need to define right set of metrics across it. This is done by setting up an ingestion structure of data which enables us track certain instrumental events (example- a click on a button).
There are two kinds of core analytics areas:
- Marketing Analytics — Dedicated to the source of incoming traffic.
Sometimes, the reason behind poor performance of product is result of non-targeted customers traffic. Hence, marketing analytics plays a major role to identify such scenarios.
Tools- Google Analytics, Omniture - Product Analytics — Dedicated to the performance of product.
It focuses on how users interact with the product and enables us to improve the drop rates across various phases of a user journey.
Tools- Mixpanel, Clevertap, Mo Engage
The AARRR Framework
It is a set of five user-behavior metrics that, a product-led growth businesses should be tracking.
- Acquisition- Getting people to visit our product
- Activation- Providing users a great first time experience. It doesn’t always mean point of first revenue generation.
- Retention- Making sure users come back and user product frequently
- Revenue- Facilitating payments from users for the product
- Referral- Encouraging users to invite others for the product
Business equations
Every business can be expressed as an equation. The goal is to come up with a quantitative representation of the business constructed from a set of metrics that we can use to optimize your business results.
Basic equation: Revenue - Cost = Profit
Even though this is too high a level but it’s a good starting point. Most high-tech companies, especially those trying to achieve product-market fit, are much more focused on increasing revenue than reducing cost
Some of the digital business models
- The Advertising Model
Generating revenue from advertisements placed on landing pages
- Revenue = Visitors x Average revenue / Visitor
- This is further broken down into a CPM model
CPM = cost per 1000 impressions
Impressions means — ad served for a user on a page - Average revenue per user = Impressions per visitor x CPM / 1000
Impressions per visitor = Visits / visitors x pageviews / visits x impressions / pageviews - Further, the visitors can be broken into “ New + returning visitors”
- Returning visitors ( T) = Visitors (T-1) x Retention rate ( daily / weekly)
2. A subscription model
Generating recurring revenue by providing continuous service
- Profit = Revenue — Cost Revenue = Paying users x ARPU
- Paying users = New paying users + Repeat paying users
- Repeat paying users = Paying users x (1 — monthly cancellation rate )
The goal of listing down these equations is to identify the key metrics that we want to measure and try to improve.
Baseline metrics- These are the core metrics like Revenue , Profit , NPS which defines the overall performance of business.
Ingestion metrics- These are the supporting metrics which directly impacts the baseline metrics. Example- Time spent , retention rate, bounce rate
Customer Lifetime value
Customer lifetime value (LTV) is the profit that a customer generates for the company without taking into account the cost to acquire the customer.
- Profit per customer = CLTV — Customer acquisition cost
When LTV is greater than the customer acquisition cost, then each new customer generates profit for the business.
- LTV = ARPU x Average customer lifetime
- Average customer lifetime = 1 / Churn rate
Customer lifetime value directly affects customer retention rates, customer acquisition costs, reveals the amount of customer loyalty you have and helps the business make better data-driven decisions.
