Product Success Metrics Can Make or Break a Digital Product


Back in the day, product teams used to rely on intuition when making decisions and evaluating the success of digital products. Not anymore! Today, data specialists read between the lines to translate seemingly random strings of numbers into actionable insights.

The first step to data-driven decision-making is defining product success metrics.

What are product success metrics?

Product success metrics are data that capture how users interact with a digital product, evaluate product success, and indicate if there is a need to adapt product strategy to reach business goals. Although product metrics should always be in line with the product strategy, product metrics, and the product strategy must be flexible enough to meet changing user needs and market conditions.

Key metrics will enable the product team to identify areas in which the digital product needs to be improved and indicate problems. However, to understand the root of the problem, one must deep-dive into the user behavioral data, understand user pain points, and identify their expectations.

To validate whether you are reaching the defined product metrics and derive insights from the user behavioral data, you should make sure you are collecting the correct data. Users are the source of your data. Therefore the data is generated when your users interact and navigate through the digital product.

Each user action in the digital product leaves a data trace. Collecting the data generated from every action a user can take when using the digital product leads to unmanageable data. To avoid that, before defining which data you will be collecting, you must make sure you have defined the product metrics. Once you know which key metrics indicate the product’s success, you will know which data you need to collect. We recommend documenting which data you will collect, meaning creating the event tracking plan. Besides validating the product metrics, keep in mind data is there to be analyzed.

What is product analytics, then?

Product analytics is the process of analyzing product data in order to understand how users engage with digital products.

It is a framework for putting users at the core of a business by analyzing their behavioral data, identifying opportunities for conversion, and creating impactful digital experiences that bring high customer lifetime value. You can think of product analytics as a process of looking into a “crystal ball.”

By asking the right questions, you can get answers that can be translated into actionable insights that will lead you to improve your digital product.

With the appropriate tool and tracking set up correctly, the following questions and many others can be answered by product analytics:

How much time do users spend using the product?

How are users navigating through the product?

Which features do they use the most?

What percentage of users convert from free to paid?

What feature is the leading cause of user retention?

Who can benefit from diving into the data?

Insights you get when analyzing the user behavioral data can be used across all teams involved in the product development process.

Leadership team: By looking at the key metrics, the leadership team can evaluate the performance of the digital product and get visibility about how it impacts the overall product strategy and business goals.

Product Manager: Using digital product data, a Product Manager can understand how users use the product, which features they use, which they don’t use, identify weak points of the product, and determine what needs to be done to improve the user experience.

Marketing team: Data helps marketers increase visibility on marketing channels that bring the most engaged and valuable users and discover which channels have the highest ROI. Also, marketers can build personalized marketing campaigns by looking at behavioral data. 

Engineering team: In a scenario with two bugs on two different features. First, you want to fix the bug of the feature used by a larger number of users because it more significantly impacts the app’s rating. Using product data, engineering teams can detect bugs users face and prioritize the resolution of bugs.

Design team: By looking at how users navigate digital products, design teams can learn whether a particular user flow could be more intuitive or clear. They can find and resolve design flaws when they understand users’ experiences with the product.

How to define product success metrics?

Digital products generate enormous amounts of data to be collected, measured, and analyzed. So the question is, where do you start in defining product success metrics?

First, we recommend identifying your business needs regarding product usage data. You can start by asking yourself:

What business insights would you like to get from the product data?

What business goals would you need to reach, and would a successful product enable you to reach them?

What business decisions do you need to take for which you believe having the product data might be beneficial?

Are there any specific business questions to which you would like to get the answer and related to the product’s usage?

Are there any user challenges associated with using the product now that you are aware of and would like to resolve?

What value do you want your users to experience when using the product?

How are the users providing value to your business when using the product?

Also, when choosing which metrics for product success, think about how you would validate the user lifecycle through the product and see it as a successful one. Also, think about how the success of the user lifecycle is linked to the overall product strategy, which should contribute to reaching your business goals.

The user lifecycle can be divided into five categories: acquisition, activation, engagement, retention, and monetization.

Before you jump into creating the metrics which should enable you to measure the user journey of each of those categories, make sure to understand each of them.

1. Acquisition: Build a sustainable user base to create a successful product

User acquisition is the process of reaching potential users through various marketing activities. The goal is to generate downloads, convert downloads to active users and build a sustainable product user base.

If you are planning on entering the market and acquiring users of digital products, make sure you have a user acquisition strategy defined.

When creating the user acquisition strategy, the first step is to identify your target users and specify the marketing methods and channels for reaching them. An efficient user acquisition strategy should be measurable, scalable, and result in a positive ROI.

The metric that can measure user acquisition is counting the number of downloads. The continuous growth of installs indicates that your product is reaching and attracting new users. Therefore, you can assess your acquisition efforts as successful ones. The most relevant user acquisition metric is calculating the conversion rate, measuring how many downloads were converted to active users.

A successful acquisition strategy is more than generating a few installs

Make sure to validate how the acquisition efforts reflect on your cost, so keep in mind that you need to create a cost-effective strategy. The metric with which you can measure if your strategy is cost-effective is by calculating customer acquisition cost and customer lifetime value.

Customer acquisition cost is the total cost of acquiring new customers, calculated by adding up sales and marketing costs and dividing them by the number of new customers for a specific period. Customer lifetime value measures the average customer’s revenue generated over their entire relationship with a company.

2. Activation: Show users the value your product offers

User activation goes beyond a user activating a user account. It is much more than just clicking a link in a confirmation email. User activation refers to the point at which the user finds value in the product and goes on to provide value to the business.

Activated users are one step closer to creating a successful and profitable product. Think of activation as a gate through which users must pass to generate revenue for your business.

When looking at the activation rate, the product team should define the user’s action to experience the value and therefore be counted as an activated user.

Activation action could be defined as making a first purchase within an e-commerce app, sharing five posts on a social media site, or creating a first playlist on an audio streaming app. It can be measured by calculating the conversion rate, dividing the number of users who take the desired action by the total number of users, or by looking at the time to activate metric, which measures how long it takes your users to reach the moment where they discover why your product is valuable to them.

Create a user activation funnel to ensure you have a high activation rate

User activation funnel refers to milestones a user has to pass to come to the action, which will define the user as an activated one, as a user who received the value from the product. When looking at the activation funnel, you are not only measuring the activation rate, but you also get the opportunity to enhance it. When tracking the user journey through the activation funnel, you have visibility on steps at which users are dropping and not converting to activated users.

As the activated users are the users who will be using the product and contribute to the product’s profitability, you should aim for the growth of your activated users.

3. Engagement: Get users engaged with your product, or deal with a leaky product

User engagement refers to a deeper level of user commitment to a product. It measures the activity of user interaction with a product over time. For example, highly engaged users are more likely to buy, return, and refer the product to a group of friends. All three actions are, in most cases, correlated with product profitability.

To measure and track user engagement, the product team should decide which user actions will categorize the users as engaged with the product. The user actions which will lead to the user being categorized as engaged highly depend on the service you are providing, on the value you expect your users to experience, and on the business model, on how you convert engagement into revenue.

Product metrics which will indicate the engagement rate, include measuring the depth, breadth, and frequency of user interaction with the product. Depth, breadth, and frequency can be measured by looking at the three metrics: adoption, user growth, and stickiness.

  • Adaptation measures the depth of your user engagement. It tells you the average number of engagement actions, the actions you have identified as those at which users are being categorized engaged, and adopted across all active users.
  • User growth refers to measuring breadth, meaning how many unique users actively use your product during a particular interval, daily, weekly, or monthly active users, and calculating their growth rate.
  • Stickiness tells you how frequently users use the product and how often your users return to your product. It can be calculated by dividing your daily active users by your monthly active users.

Looking at different industries, an e-commerce app will count as engagement monthly active users and users who are adding items to the cart; a social media site will be looking at the daily usage, clicks, comments, searches, or shares; a music streaming app will be counting daily active users, songs listed to, playlists created, or friends added.

4. Convert active users into habitual users, and build a sticky product!

User retention rate is the metric that shows whether your product has staying power. It measures how many users return to your product in a defined period. User acquisition is expensive; increasing retention offsets new customer acquisition costs and increases the user’s lifetime value.

You could create a great user experience, but you need to turn those users into habitual users to avoid ending up with a leaky product. Rushing to acquire new users while lacking a good retention strategy will lead to increased acquisition costs without a recurring source of revenue.

What indicators of retention can be tracked at the feature level or product level?

Measuring feature usage retention is simpler than measuring user retention at a product level. In the latter case, the product team should determine the critical product event, meaning the user action at which you will count the user as a returned one. So be wise when defining the user action to measure users as returned users.

Also, user retention should be looked at in a defined period. User retention looks at first-time users within a defined period and measures the percentage of those users returning in subsequent periods. So make sure you determine the product usage interval, how often you expect people to use your product, and measure retention in that specific period.

5. Convert active usage into revenue

Monetization is defined as the action or process of earning revenue. In the world of digital products, monetization refers to generating revenue through increased product usage or adoption. Therefore, monetization metrics capture how well your business turns activated users and user engagement into revenue.

Monetization metrics can be categorized into revenue-centric and user-centric metrics. Breaking down and analyzing these metrics together provides a deeper understanding of both the users and the business from the profitability point of view.

Revenue-centric metrics capture the overall revenue generated from product usage and provide a peek into business performance. When choosing the metrics with which you will measure the revenue, make sure these correlate with the business model and the service you are providing. Those metrics could be monthly recurring revenue (MRR) or monthly non-recurring revenue (MnRR), new, retained, or reactivated MRR, average revenue per user (ARPU), or customer lifetime value (CLTV).

User revenue-centric metrics imply classifying the users based on the revenue they generate. Some of those metrics are Monthly Paid Users, % of Paid users, % of Trials to Paid converters, and Payment Instrument (PI) attach rate. For example, the ratio of paid and free users can give you visibility into a product’s perceived customer value proposition and its features. If your product has more paid users, it indicates that you are succeeding in providing value to the users.

Understand what the users and data are telling you

When looking at the product success metrics, at first glance, you will see numbers, numbers, and a lot of numbers. But product metrics are more than numbers. They are information – about how users interact with your product, what the users like, what drives them to use the product, what they don’t like, and what makes them churn.

Based on this, we can look at those numbers as a language by which the users communicate with you. Learn to speak it, so the insight does not get lost in translation.