2021 Guide To SaaS Product Management Metrics Every Product Manager Should Be Tracking
Looking for the right SaaS product management metrics that offer valuable product growth insights?
Well, look no further.
Defining and tracking key metrics is an integral part of the product management process. As there are no universal metrics that apply to every product, finding the right SaaS product management metrics can be quite challenging for product managers.
We’ve compiled a guide of the core metrics every product manager should be tracking to help you to get started with SaaS product management metrics.
In this article you’ll learn about:
- Ways to measure SaaS products.
- SaaS product management metrics and why you should be tracking them.
- How to measure the key product metrics at each stage of the user journey.
TL;DR
- You can measure SaaS products by tracking specific metrics across different stages of the user life cycle, using the Pirate metrics framework (AARRR).
- Justin Butlion’s four-step framework illustrates the feature adoption funnel that outlines how users adopt a feature, and it consists of Exposed, Activated, Used, and Used Again.
- SaaS product management metrics can be categorized into Activation metrics, Feature adoption metrics, Product active usage metrics, Retention metrics, Customer satisfaction metrics, and Revenue metrics.
- Activation metrics you can track: activation rate
- Feature adoption metrics you can track: time to adopt, breadth of adoption, depth of adoption, duration of adoption
- Product active usage metrics you can track: feature usage, stickiness, customer engagement score
- Retention metrics you can track: retention rate, churn rate
- Customer satisfaction metrics you can track: net promoter score (NPS), customer satisfaction score (CSAT)
- Revenue metrics you can track: LTV to CAC ratio, MRR churn, customer churn rate, ARR, ARPU
- With a tool like Userpilot, you can track product usage analytics and build in-app engagement experiences to drive product adoption.
How are SaaS products measured?
SaaS products are measured by tracking specific metrics across different stages of the user life cycle. This is usually done using “AARRR” or the Pirate metrics framework and helps to understand how users interact with the product.
Besides, revenue metrics help track your SaaS product’s health.
Why should product managers track product metrics?
Product managers need to understand how users interact with the product. Product metrics help them to do exactly that.
Developing a product involves finding out what’s working with the users and what’s not. PMs need to evaluate ideas and identify the ones that offer the most value to the users. Product metrics offer them valuable insights on what’s bringing value and what’s adding friction.
PMs need to create an effective feedback loop, which has to be integrated into the product planning and development processes. Measuring the right product metrics allows them to act on this feedback and improve the product.
One of the key responsibilities of a product manager is to be able to prioritize features based on the product roadmap’s strategic goals and initiatives. With the insights they get from product metrics, product managers are able to do this efficiently.
What are the metrics used in SaaS product management?
The number of SaaS product management metrics can be overwhelming for PMs at times. Categorizing the metrics based on user journey stages will help them track the metrics that matter the most.
We can categorize SaaS product management metrics as follows:
- Activation metrics: Measures the first value moment of users.
- Feature adoption metrics: Measures the frequency and cadence of key actions.
- Product active usage metrics: Measures the daily, weekly, monthly, or even annually active users.
- Retention metrics: Measures the number of users coming back.
- Customer satisfaction metrics: Measures loyalty, satisfaction, and user experience.
- Revenue metrics: Measures the sales revenue generated.
Let’s dive deeper into each type of SaaS product management metrics and how they are valuable to product managers.
Metrics to measure SaaS activation
SaaS activation is an important milestone in the SaaS user journey as it represents the point the user gets to experience value in your product through engaging with your product’s key features. Take a look at this User Journey Template to see where you currently are on your journey!
Activation rate
The SaaS activation rate represents the number of users reaching the activation point in the user journey. Every product has its own “healthy” activation rate. It’s impossible to set a universal benchmark for it.
This is because the activation rate depends on user engagement with the key points of your product, which allows them to experience its value. Not every user persona gets the benefits of your product through the same in-app events.
So it makes sense to separate your new users into cohorts and calculate the activation rate separately for each cohort.
After that, calculate the user activation rate by dividing the number of users activated by the total number of new users who signed up in a given period and multiply it by 100%.
Metrics to measure SaaS adoption
A product manager has to consider 2 types of adoption: product and feature adoption.
Product adoption allows them to understand how users are interacting with the product. Feature adoption dives deeper and helps them understand what part of the product users are finding relevant and are engaging with.
Justin Butlion, the founder of ProjectBI, developed a four-step framework that illustrates the feature adoption funnel. This framework outlines how users adopt a feature in four stages.
You can track these metrics for key features of your product and identify friction points that are stopping users from adopting a feature.
You can then use feedback surveys and gather insights into what customers like and dislike, and then act on the insights to improve your product and the adoption journey.
Exposed
First, you take a look at the number of users ‘exposed’ to a particular feature. These users are aware of the existence of the feature or have discovered the feature.
Activated
In this step, you need to narrow down the users from the Exposed step by focusing on those who have actually tested or activated the feature.
Used
Once you get the number of activated users, find out the percentage of these users who go on to use the feature at least once.
Used again
At this stage, you need to track the number of users who have used the feature repeatedly. Repeated usage leads to adoption.
While measuring feature adoption may seem quite straightforward at this point, there’s still work to be done. To get actionable insights, you need to track feature adoption on multiple levels.
Here’s how you do it.
Time to adopt
You need to measure the time it takes for a user to start using a new feature. Find out if users are using the feature immediately or waiting for a while. This is a key issue as it indicates how well the feature addresses user needs.
Breadth of adoption
While we have emphasized the need to measure adoption in cohorts, it’s also important to get a bird’s-eye view of the entire user base. The breadth of adoption measures the adoption of a feature across your user base. This helps you gauge the appeal of the new feature.
Depth of adoption
Depth of adoption indicates a key aspect of feature adoption — is the feature relevant to user needs? It measures how often users are utilizing the feature.
You need to track if they are demonstrating stickiness by applying the intended workflow. Keep monitoring it to understand if the feature is solving issues or creating some.
Duration of adoption
This measures how long users continue to use a feature. Find out the frequency and nature of feature usage. Depth of adoption will help you understand if a feature is actually valuable to the users.
Metrics to measure SaaS product active usage
Product active usage is the repeated usage of a product that leads to continuous value, which, in turn, leads to product stickiness.
Feature usage
We’ve covered what adoption of a feature means. But as a product manager, you should also track repeated usage of important features over time.
Calculate feature usage by dividing the number of feature MAU by the number of user logins in a given period, multiplied by 100%.
Here’s a tip if you want to both measure and increase feature usage without using two tools, one for product analytics and one for in-app engagement: use a tool like Userpilot to track feature engagement without coding.
With Userpilot, tag any feature using your product’s UI and track feature engagement without needing to code and setting custom events. Once you’ve tagged the features you need, set specific feature engagement goals and run in-app experiences like checklists, tooltips, interactive walkthroughs, etc., that are meant to increase engagement and achieve goals.
Want to track feature adoption and build in-product experiences to increase engagement? Get a Userpilot demo and get started!
Stickiness: Daily active users (DAU) to Monthly active users (MAU) ratio
Stickiness or DAU to MAU ratio tells you how often users are coming back to your app. This indicates that the users are getting repeated value, which, in turn, boosts user retention.
Stickiness is a great measure of the value your product provides to your users. It is the ratio of your daily active users to monthly active users (Stickiness = DAU/MAU).
DAU or Daily Active Users is the number of active users interacting with your product daily. On the other hand, MAU or Monthly Active Users indicates the number of active users interacting with your product each month.
DAU and MAU alone aren’t quite useful for SaaS products. But the ratio helps you understand the growth of your user base and how effectively your product is engaging your users.
Customer Engagement Score
Customer engagement score (CES) measures the engagement level of your existing customers and free trial prospects. A score based on action or inaction reflects the engagement of each user. The more happy a customer is with your product, the higher CES is for them.
Calculating CES requires you to incorporate a variety of events together and quantify them.
First, you need to identify key events and define what engagement means for your product throughout the entire user journey. Then, you need to track these events by setting up product analytics.
Now, assign a score to each of these events based on their importance to your product and the user persona. Add a weighted score based on the importance of each event and the number of times it happened. Then, calculate the event value for each event.
Here’s an example of calculating event value for each event. In this case, every time a customer performs the event 1, 2, and 3, they get 4, 1, and 10 points, respectively. The event importance score is multiplied by the number of events to get the total event value.
Once you’re done calculating the event value for each key event, add them all to find the Customer Engagement Score or CES.
As a Product Manager, you want to factor in engagement with both core product features and secondary features.
Customers with a high engagement score can be potential candidates for future beta testers. They can also give you relevant and specific insights into how they are getting value from your product.
Collect their feedback through user interviews or in-app micro surveys then replicate the strategy for other users.
For low score users, you need to understand what’s stopping them from deriving the value. This will offer you insights that will help you fix their issues, remove friction, and lower your churn rates.
Metrics To measure SaaS retention
SaaS retention is indicated by repeated purchases of a product subscription. It can be measured by Retention rate and Churn Rate.
Retention rate
Retention rate is the percentage of users you retain over a specific period. These users initially subscribe for a specific period and then resubscribe for another.
To calculate the retention rate, you need to first determine the period you want to measure. The length of the period depends on your product type and business goals.
Then, you can calculate the retention rate by dividing the number of paying users at the end of the period by the total number of paying users at the beginning of that period and multiplying it by 100%.
Retention rate is a crucial metric for product managers to understand how customers feel about renewing their business with you. This also indicates the satisfaction level of users using your product.
To get a better understanding, the use of the retention rate should be coupled with the churn rate.
Churn rate
The churn rate is the inverse of the retention rate. It tells you how quickly you are losing your customers.
For accurate results, use the same period you used to measure retention rate to calculate customer churn.
You can now calculate the churn rate by dividing the number of lost customers during the period by the number of customers at the start of the period and multiplying it by 100%.
Churn rates allow product managers to gauge the rate at which customers are leaving. This helps them identify why they are leaving and at which stage of the funnel.
PMs can then formulate strategies to resolve the issues that are causing customers to churn.
Metrics to measure SaaS customer satisfaction
Customer satisfaction can be measured through customer feedback. This involves collecting actionable feedback and customer insights on customer experience and sentiment. You can do so with a survey feedback widget placed inside your product.
Net Promoter Score (NPS)
Net Promoter Score or NPS tracks user sentiment on your product and the likelihood of users recommending it to friends. It collects feedback on a scale of 0–10 (with 10 being most likely).
Net Promoter Score can be calculated by subtracting the percentage of Detractors from the percentage of the Promoters.
For example, if 57% of your respondents answered with 9 or 10, and 21% answered 6 or below, your NPS is 57–21 = 36.
NPS allows PMs to focus on the insights that can be collected using a qualitative follow-up question.
It helps them uncover product friction or missing features, as well as what customers value in your product. These insights will then help product managers to prioritize product roadmap and improve the overall product.
With a tool like Userpilot, you can collect and then group NPS feedback responses into separate themes and understand what’s (or what’s not) making users loyal.
Want to start tracking NPS in-app? Get a Userpilot Demo and see how you can do it without coding.
Customer Satisfaction Score (CSAT)
Customer Satisfaction score or CSAT measures a customer’s experience and satisfaction levels with a specific product, feature, or team interaction. It looks at a very specific interaction of the customers and usually ignores their overall experience with your product.
CSAT is calculated with a quick survey generated after an interaction. It asks the customer whether they had a positive or negative experience and records the responses.
While it might seem isolated, CSAT is actually a key aspect to understanding customer retention. This is because CSAT offers product managers valuable insights that help them uncover friction within the product.
Take this example from Hubspot.
Metrics to measure SaaS revenue
LTV to CAC ratio
LTV or Customer Lifetime Value is the average amount of money your SaaS business earns from a user over their time as a paying customer, and CAC or Customer Acquisition Cost is the cost of acquiring that customer in the first place.
The LTV: CAC ratio helps you measure customer profitability and the efficiency of achieving it. It helps product managers identify the user segments generating the most value. This helps them formulate better retention and acquisition strategies.
Consider the LTV: CAC ratio as an indicator of the growth potential of your business. A high LTV: CAC ratio (more than 3:1) indicates that you’re getting thrice the value of what you spent acquiring a customer, which indicates that your business is likely to be sustainable.
Monthly Recurring Revenue (MRR) Churn
Monthly Recurring Revenue (MRR) Churn indicates the amount of money you’re losing in a specific month due to customer churn. This can be due to account cancelations or downgrades.
Net MRR churn rate is the percentage value of MRR churn that helps you better gauge the impact of the loss incurred. You can calculate it by first subtracting Expansion MRR from Churned MRR, dividing the result by starting MRR, and then multiplying the result by 100.
Net MRR churn helps you understand where your company stands when it comes to monthly revenue.
If Net MRR Churn is above zero in a particular month, it means that you earned less money than you did in the previous month. This indicates that you need to take action to reduce the churn rate urgently.
Customer Churn Rate
Customer Churn refers to the number of users lost in a specific period. This measures the number of users who stopped paying for a subscription.
Customer churn rate is the metric that indicates how quickly you are losing your customers.
To calculate the customer churn rate, divide the number of lost customers during a period by the number of customers at the start of that period. Then, multiply the result by 100.
Customer churn shows you how many customers you are losing month-to-month, acting as a warning to pay attention to issues that need resolving. Combined with the customer churn rate, you can get an accurate estimate of how urgently you need to get rid of these issues.
Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) measures how much recurring revenue you expect each year from subscriptions.
You can calculate ARR by multiplying the average annual revenue per account by the number of accounts in a given year. Alternatively, multiply your MRR value by 12.
Tracking both ARR and MRR (Monthly Recurring Revenue) helps you understand if your SaaS business is generating sustainable results.
Average Revenue Per User (ARPU)
Average Revenue Per User or ARPU indicates the average monthly revenue per paying customer.
You can calculate ARPU by dividing your Monthly Recurring Revenue (MRR) by the number of paying users.
ARPU tells you how valuable your existing customers are. You can also use it to gauge the effectiveness of your pricing strategy.
Conclusion
With the right product management metrics, product managers can get actionable insights to build valuable products.
Metrics like activation rate, feature usage, stickiness, and CES help PMs understand how users are interacting with their products, while NPS and CSAT help them understand the value customers are receiving.
To measure the health of the SaaS business, metrics like Retention rate, LTV: CAC ratio, MRR churn, Customer Churn rate, ARR, and ARPU come in handy.
Want to get started with measuring product management metrics? Get a Userpilot Demo and see how you can get actionable product insights!
