Product metrics is the tangible part of product management & hence helps product managers make profitable strategies. In this article, we will be discussing the 5 basic product metrics which every product manager need to include in his analysis & decision making.
Customer Lifetime value (CLV): The most important of all, CLV is the average revenue (net profit) generated from a customer during his relationship with the company/brand.
It is calculated by the first calculating the average profit from that customer in a month multiplied by average lifetime of a customer in months
CLV = Average profit/ customer in a month
Average lifetime of a customer in months.
Average profit per customer can be calculated by dividing the gross profit amount by the number of customers.
Average customer lifetime is the average of lifetime( in months) a customer is attached with the company.
Customer acquisition Cost (CAC): The expenditure to generate a new customer.
Every business/Brand to grow requires new customers & CAC is the measure of cost a company is bearing to generate new customer. It is important to calculate the profit per customer.
Example: If a company spends Rs 100000 on a campaign, and 25 new customers were generated, CAC is Rs. 4000.
Importance: If CLV is equal to less than CAC that means, a company is spending more or equal to generate a customer than it can generate in the lifetime of relationship of that customer, means the company needs to change tracks. There’s need to change the brand /company strategy.
In a month, the percentage of customers those stop using your product.
To calculate, Churn rate
= No. of customers previous month – No. of customers this month
No. of customers previous month
Importance of Churn Rate: Healthy churn rate is an indicator of acceptance & satisfaction of customers for brands especially with monthly involvement of customers.
Conversion rate: The percentage of prospective customers who take a specific action in buying or enquiring about the product. Increasing conversion rate is directly related to increasing profits.
Example: Suppose you have a Website & you spent Rs 10000 in its promotion, after which around 50 people visited your website. These 50 are your prospective customers. Out of them, 10 visitors contacted your company, these are your converted customers. So, your conversion rate is (10/50)% = 20%.
If you work on increasing your conversion rate, so that 15 visitors contact your company, then in same expenditure of Rs 10000, your net customers engaged has increased and hence increase in profit.
Average Revenue per User (ARPU): Average Revenue generated per User in a month. If ARPU is increasing without increasing campaign cost, that means the strategy is working.
Taking these 5 Product metrics into account can help any product manager analyse the product/company well & Also, make practical & effective strategies.