11 Product Performance Metrics SaaS Businesses Should Monitor
What are product performance metrics?
Product performance metrics, or product key performance indicators, are quantitative data measurements that provide insights into how users interact with the product and the impact of those interactions on the overall health of the product – and the business.
Product, marketing, and customer success teams use these metrics to assess the product success.
Why is it important to monitor product metrics?
Product KPIs allow teams to get a complete and objective picture of user behavior at all stages of the user journey – in real time.
Such an in-depth understanding of user behavior enables you to:
- Identify improvement areas
- Make accurate forecasts
- Make informed product development decisions
- Allocate resources to the right initiatives
- Measure the impact of product changes
In addition, product performance metrics are essential to secure the buy-in of key stakeholders and decision-makers.
For example, they may be essential to secure support for certain product initiatives from senior leadership or the next round of VC funding.
How do you measure product performance?
For starters, you need to collect the data.
You can do it by tracking product usage and customer behavior inside the app and running surveys.
Once you have the data, it needs to be cleaned and filtered to ensure the insights are of the right quality.
The final step involves calculating the metrics and visualizing the data to enable effective analysis.
You can calculate them manually (below we provide the formulas).
But there’s an easier way:
With performance monitoring software like Userpilot, you can automate all the stages of the process. Such tools help you collect all the relevant data, ensure its integrity, and visualize them in custom dashboards.
How to select the right key performance indicators for your SaaS company?
As a product, marketing, or customer success manager, you can track dozens of metrics and it may be tempting to do so!
Don’t, as many of them are vanity metrics and this will only hinder your ability to make informed decisions.
Start by reviewing your product vision, strategy, and goals, and choose the North Star metric that’s aligned with them. That’s the one single metric that will drive the efforts of your team.
For example, if you want to increase revenue, your North Star metric could be Monthly Recurring Revenue.
Next, select a set of supporting metrics that are aligned with the North Star metric. In this case, this could be user retention rate, monthly active users, and customer lifetime value.
11 key metrics to track for evaluating performance
Regardless of your specific product goals, you’re likely to track a set of core product performance metrics. Here are 11 metrics we believe are essential to monitor for most products.
Acquisition metrics
The acquisition stage is when the user signs up for the product. In the SaaS context, it’s likely to be a free plan or trial.
1. Customer acquisition cost
Customer Acquisition Cost (CAC) is the total cost of acquiring an average customer, including marketing and sales expenses.
This metric is crucial for understanding how efficiently you’re using your resources to attract new customers. Lower CAC indicates a more cost-effective customer acquisition strategy, essential for profitability and scalability.
2. Trial sign-up rate
The trial sign-up rate measures the percentage of visitors who sign up for a trial version of your product.
It’s an important indicator of the initial appeal and market fit of your product. High trial sign-up rates suggest effective marketing and a compelling product value proposition.
Monitoring this rate helps in assessing the effectiveness of marketing campaigns as well as the optimization of the sign-up page or flow.
Activation metrics
Activation happens when the user discovers the product value.
3. Activation rate
The activation rate tracks the percentage of users who complete an activation event, for example, take an action or reach an important milestone.
A robust activation rate suggests that new users find the product valuable, the onboarding process is effective, and the product design is intuitive, which is critical for long-term user retention and success.
4. Time to value
Time to Value is the duration it takes for a new user to reach the activation point.
The longer it takes users to realize the product value, the more likely they are to churn, so the metric is essential for product success.
You can use it to identify friction in the user journey and improve the onboarding process to quickly engage and retain users.
5. Free to paid conversion rate
The free-to-paid conversion rate is the percentage of users who upgrade from a free version to a paid subscription.
This metric is essential for understanding the effectiveness of your product’s value proposition and pricing strategy, as well as onboarding and account expansion tactics.
Retention/engagement metrics
The retention stage is about ensuring that the users keep using the product by making the product engaging and valuable.
6. Customer retention rate
Customer retention rate is the percentage of customers who continue to use the product over time.
It’s critical for understanding customer loyalty and satisfaction, as well as the long-term stability of the revenue stream.
High retention rates are often associated with successful product-market fit and excellent customer experience, so it’s kind of vital for sustainable growth.
7. Customer satisfaction score
Customer satisfaction score (CSAT) is an indication of how satisfied customers are with your product or service.
This metric is calculated from survey data.
In the survey, you ask users to rate their satisfaction on a Likert scale, normally from 1 to 5 or from 1 to 7. Next, you add all the positive responses (3-5 or 4-7) and divide them by the total number of responses.
This metric is crucial for gauging customer happiness and identifying areas of improvement. High CSAT scores are usually correlated with higher retention rates and word-of-mouth recommendations.
Referral metrics
Referral metrics are an indication of how well you’ve managed to turn your customers into product advocates on whom product-led companies rely for organic growth.
8. Net Promoter Score
NPS assesses customer loyalty by asking customers how likely they are to recommend your product to others.
It’s a key metric for understanding customer satisfaction and loyalty at a deeper level. A high NPS indicates strong customer advocacy, which can lead to organic growth through referrals.
Just like CSAT data, NPS data is collected via surveys.
Next, you use a calculator to get the overall score and segment respondents into detractors (1-6), passives (7-8), and promoters (9-10). Or you can let your analytics tool do all this for you and summarize it in a dedicated NPS dashboard.
9. Referral rate
Referral rate refers to the percentage of customers who refer your product to others, for example, friends, colleagues, or relatives.
It helps you evaluate the effectiveness of referral programs. High referral rates suggest strong customer advocacy and can significantly reduce customer acquisition costs.
Indirectly, it’s also an indicator of customer satisfaction.
Revenue metrics
Revenue metrics help teams evaluate the business success of the product.
10. Monthly recurring revenue
MRR is the total predictable revenue generated each month from all active subscriptions, calculated by multiplying the average revenue per customer by the number of customers.
It’s a critical metric for SaaS companies as it reflects the health and predictability of the revenue stream.
Tracking MRR helps in financial planning, forecasting growth, and assessing the impact of customer acquisition and retention strategies.
11. Customer lifetime value
Customer lifetime value (LTV) is the total revenue expected from a customer over the entire period of their relationship with the company.
This metric is important for understanding the long-term value of customers. It also provides a valuable context for CAC.
A high LTV indicates a valuable customer base and can help you evaluate the effectiveness of your retention, pricing, and account expansion strategies.
Conclusion
While the above 11 product performance metrics are commonly used by product teams to monitor product health, they may not be relevant in your situation as it all depends on your product goals.
If you want to see how Userpilot can help you track your product performance, book the demo!
