What happens when different teams within a PLG company focus on different metrics? If the product team zeroes in on monthly active users while marketing concentrates on new signups, there’s a disconnect — potentially leading to missed growth and revenue opportunities.
These discrepancies can contribute to the misallocation of resources and prevent a holistic understanding of user behavior, product adoption, and overall product health. It’s similar to having multiple navigators in a vehicle, each following a different map — the route becomes confusing and the destination unclear.
To keep your team aligned, it’s important to understand product metrics and choose which make the most sense for your company to track and base decisions off of. Explore 10 key product metrics that can provide valuable insights.
1. Monthly Recurring Revenue (MRR)
Monthly recurring revenue measures your product’s total revenue over the course of one month. By keeping an eye on MRR, you can gauge your financial health and anticipate cash flow — while also collecting key insights into the subscription behavior of your customers.
When you track MRR, it’s important to look at the trends over time. This gives you clear insights into your product's health since it's directly tied to your incoming revenue.
2. Customer Acquisition Cost (CAC)
CAC is the amount of money it costs your company to acquire a new customer. This is one of the first metrics you should consider, as it helps you decide how much money should be spent on attracting customers while keeping your company profitable.
You should constantly compare CAC with the revenue generated by your customers. If it costs $1,000 to acquire a new customer, but the customer brings a value that is less than $1,000, something needs to change. CAC can also be viewed as a trend over time, helping you understand how acquisition costs can evolve from year to year — or even month to month.
3. Churn Rate
The churn rate is the rate at which customers stop doing business with a company over a given period of time. Monitoring churn rate is important because it allows you to understand when people are leaving your business — and how this impacts your bottom line.
Spotting a high churn rate? It’s not just a cue to reevaluate your product or user experience, but also a signal for marketing to step in. This might mean enhancing user engagement through improved onboarding, finding innovative ways to keep users hooked on the product consistently, or fostering a stronger user community.
4. Retention Rate
The retention rate indicates the percentage of customers you retain over a specific period, crucial for long-term growth. This is the opposite of a churn rate — retention rates display your loyal customers and help you understand what’s keeping those customers around.
Calculate it by taking the number of customers at the end of a period minus the new customers acquired, divided by the number at the start of the period, then multiply by 100. View these rates as a trend and compare them over time to identify what’s keeping customers satisfied.
5. Average Revenue Per User (ARPU)
ARPU is the golden metric for monetization. ARPU lets you understand how much revenue, on average, each user brings to the table. This can guide pricing strategies and spotlight potential upselling opportunities.
To calculate it, divide the total revenue in a specific period by the number of active users or subscribers. Watching how ARPU evolves over time can highlight potential areas for improvement or upselling opportunities.
6. Product Adoption Rate
Product adoption rate helps you understand the percentage of users who start using a new product or feature. High adoption rates indicate that your innovations are meeting user needs effectively. This is especially useful for product-led brands as it allows you to maximize customer delight and retention rate, and adjust based on user activity.
Calculate it by dividing the number of users who've adopted the new product/feature by the total number of users, then multiplying by 100 — and then consistently check this metric post every product release. It’s important to note that the definition of "adoption" can vary by company, so before you crunch the numbers, ensure your team is aligned on what it means.
7. Customer Lifetime Value (CLV)
CLV estimates the net profit attributed to the entire future relationship with a customer. This metric allows you to recoup the investment required to earn a new customer and provides insights into customer retention and potential profitability.
You can determine CLV by multiplying the average purchase value, average purchase frequency, and average customer lifespan. View this as a trend, and periodically revisit this metric to tailor lifecycle marketing and user retention strategies.
8. Net Promoter Score (NPS)
NPS gauges customer satisfaction and loyalty by asking them how likely they are to recommend your product to others. It allows you to get a grasp on the number of loyal customers who recommend your product — versus customers who wouldn’t recommend your product.
Survey customers with the question, "On a scale of 0-10, how likely are you to recommend our product?" Classify responses: Promoters (9-10), Passives (7-8), and Detractors (0-6). The formula to calculate NPS is subtract the percentage of promoters from the percentage of detractors. View NPS as a trend in order to track customer satisfaction over time, and dig deeper into the detractors to understand the issues they’re having with the product.
9. Daily Active Users (DAU) and Monthly Active Users (MAU)
DAU and MAU provide a pulse on your product's engagement, revealing how many users are active daily and monthly. A significant gap between DAU or MAU and the total number of users may suggest that while many users try your product, only some use it regularly. This would signal the need for re-engagement campaigns or stronger onboarding to improve the stickiness of your product.
Simply count the number of unique users who engage with your product daily and monthly. As with “adoption” above, the definition of “active” will vary from company to company — so make sure your team is synced on what it means for you.
10. Time to First Value (TTFV)
TTFV measures the time it takes for a user to get value from your product after sign-up. It's essential for PLG companies that rely on delivering quick value to reduce churn and increase loyalty.
Monitor user journeys and determine the average time between signup and the first significant product interaction or achievement (note that companies will define their first significant product interaction differently). If the time to first value is longer than you’d like, re-evaluate onboarding programs and the in-product experience for new users.
Let FPS Guide Your Growth
By tracking product metrics and using data to inform your decisions, you’ll be able to effectively understand user engagement, optimize your PLG strategies, and drive growth.
Not sure where to start? We can help. Reach out to schedule a call, where we'll measure your growth against industry benchmarks and help you identify areas of opportunity.