Whether you’re a startup seeking market validation or a well-established brand looking to grab some additional market share, progress towards those goals will always need to be tracked. The data points we use to track this progress are called metrics.

In this article, I’ll explain the difference between leading and lagging metrics, clarify the roles of business and product metrics and highlight why tracking key metrics is essential for growth. We’ll also discuss the potential risks when neglecting to monitor these crucial data points

Lagging vs. Leading Metrics

Often referred to as lagging and leading indicators, these values are metrics that can track product growth and provide real-time insights into the health of your business.

• Lagging indicators are used to give insight into past performances and are less frequently evaluated. They are used to direct long-term product strategy and are largely represented by revenue figures. For example, an annual revenue target may only be evaluated once a year.

  
  

• Leading indicators are metrics that help predict future outcomes or performances. They are early signals that provide insight into where your company is heading and allow proactive adjustments. For example, a high user retention rate may be an indicator of product-market fit, or an upcoming influx of conversions from free to paid users.

You should use a combination of leading and lagging metrics. Leading metrics should be reflected on frequently and drive your day-to-day activities whilst lagging metrics should be periodically evaluated and used to review performance. Your leading indicators should be the driving force behind your lagging indicator’s outcomes.

Product vs. Business Metrics. What’s the difference?

What springs to mind when you think of metrics? The answer will vary depending on your proximity to a product team.

For those of you within product teams, metrics like daily active users and onboarding completion rate are often top of the list. These product metrics provide insight into how users are interacting with your service. They focus more on individual aspects of a product than business metrics do and can serve as early warning signs a product is failing to meet the needs of its users. Typically, these metrics fall under the umbrella of leading indicators.

For those with more business-focused roles, it’s probably Monthly Revenue, or Market Share. These are business metrics, and focus on the overall performance of the product, financially or otherwise. These often fall under the category of lagging metrics. For example, gross revenue, or total market share may only be evaluated at quarterly, or even bi-quarterly meetings, whereas product metrics are evaluated more often. Relying entirely on business metrics puts your company at risk of being late to adapt to market shifts.

Why Track Product Metrics?

• Product metrics lead to better product decisions.
  Imagine this - you’re expecting a 4% increase in monthly recurring revenue (MRR) for the next 12 months. January through April is looking good, but May sees no increase at all. What’s the cause? Luckily, you decided to track a number of product metrics at the start of the year. Your product team has spotted that onboarding completion rate is down 12% for the last 28 days and research has already been conducted to identify areas of improvement. Fast forward to the start of June - the problem has been identified and a new onboarding flow has been released.

  If you hadn’t been tracking product metrics, potential users would have been lost and a full product audit may have been called as teams try and desperately figure out where in the product the improvements need to be made.

  
  

• Product metrics make it easier to earn executive approval.

  Following on from the previous example - the new onboarding flow requires approval from leads and external stakeholders.

  ‘We’ll be monitoring the onboarding completion rate closely for the next 4 weeks. We expect to see a X% increase as well as a return to our goal of 4% increase in MRR.’ is much better than ‘We’ll have to wait until the end of the month to see if these changes have had the effect we were hoping for.’ Quantify the impact.

The Most Commonly Tracked Product Metrics

The most important metrics to track will vary between industries - ecommerce stores will have a particular focus on conversion rate optimisation and cart abandonment rate, whereas a subscription-based service may place more emphasis on optimising user retention and customer lifetime value.

The 5 most commonly used product metrics in product teams are

• Daily Active User / Monthly Active User Ratio
  The DAU / MAU ratio measures how often users come back to your product, comparing daily to monthly active users. A higher ratio suggests a longer-term, more frequent usage.

  
  

• Churn Rate
  This metric is used widely when looking at freemium and subscription-based products. It can act as an early warning sign for a lack of product-market fit. (tiers are too expensive, aren’t matching what the user is willing to pay for, etc.) A low churn rate shows that your subscription model is matching what your consumers are willing to pay.

  
  

• Feature Adoption Rate
  Releasing features for the sake of releasing features is the main cause of startup failure, commonly referred to as product bloat. Tracking how well your features are resonating with users is crucial in understanding where to focus your efforts, and ensures an efficient use of resources.

  
  

• NPS Score
  Net Promoter Score is used to gauge overall customer satisfaction towards the product, with specific focus on how likely users are to recommend your product to a friend. If your product has a built-in referral system, you can track the total number of referrals per user using the viral coefficient metric

  
  

• Conversion Rate
  Tracking conversion rate is especially important for e-commerce stores. It measures how effectively your purchasing funnel is working. Other related metrics include Average Order Value, Customer Lifetime Value, and Churn Rate.

Unlocking Product Metrics: Key Strategies for Growth

Product metrics are more than just data points - they’re an objective view of how consumers are interacting with your product and act as an early warning system that your product isn’t meeting user needs. To maximise the value you’re receiving from your chosen metrics, make sure you do the following

• Don’t just rely on quantitative metrics. As a product team, it’s your job to empathise with the user, and this means not only identifying pain points, but understanding the underlying cause. Research methods such as usability studies and interviews are your friend and exponentially increase the chance that your solution will solve the problem consumers are facing. 

  
  

• Utilise a product metrics framework like Pirate Metrics (AARRR), or the North Star approach.