In the simulator we introduce two types of metrics: growth metrics and product metrics. These categories help students understand which metrics should be used in which situations.
- Product metrics answer questions about the product itself. They help you to understand how the product converts new users into active users, paying users, profit, orders, support requests, etc.
- Growth metrics answer questions about the business built around the product. These metrics include revenue, number of active users, number of orders or calls to support.
Over the past few years, I have noticed another type of metric: efficiency metrics or added value metrics.
In this essay, we will discuss what these metrics are, why they are needed, and why the product team should focus on them.
→ Test your product management and data skills with this free Growth Skills Assessment Test.
→ Learn data-driven product management in Simulator by GoPractice.
→ Learn growth and realize the maximum potential of your product in Product Growth Simulator.
→ Learn to apply generative AI to create products and automate processes in Generative AI for Product Managers – Mini Simulator.
→ Learn AI/ML through practice by completing four projects around the most common AI problems in AI/ML Simulator for Product Managers.
↓ All posts of the series:
→ Addressing user pain points vs solving user problems better.
→ Product manager skills: evolution of a PM role and its transformation.
→ Product metrics, growth metrics, and added value metrics.
→ Customer retention levers: task frequency and added value.
→ How to measure the added value of a product.
→ Should a product be 10 times better to achieve product/market fit?
→ Product/market fit can be weak or strong and can change over time.
→ Two types of product work: creating value and delivering value.
→ What is the difference between growth product manager, marketing manager, and core PM.
Product metrics
You can view any product as a black box that people use to solve their problems. New users are submitted as input to this box. The product processes them and turns them into active users, profit, support requests, etc.
Product metrics show how the product converts new users into other matters:
- Retention shows how the product converts new users into active users.
- Lifetime value (LTV) measures the profit that new users generate during the entire period of using the service.
- Purchase conversion shows how a product converts new users into paying customers.
Growth metrics
If product metrics describe the product itself, then growth metrics describe the business that is built around it.
Growth metrics are derived from product metrics and the number of new users, the main levers of influence on overall business growth.
Here are some examples of growth metrics:
- DAU or Daily Active Audience (New Users * Retention),
- Profit (new users * LTV)
- Number of users sending messages (new users * Retention into sending a message)
- Number of new subscribers (new users * Subscription conversion rate).
| Product Metric | New Users * Product Metric = | Growth Metric |
| Daily Retention | New Users * Daily Retention = | DAU |
| LTV | New Users * LTV = | Gross Profit |
| Retention into Sending a Message | New Users * Retention into Sending a Message = | Users Sending a Message |
| % of New Users Who Subscribe | New Users * % of New Users Who Subscribe = | Number of New Subscribers |
Why product metrics and growth metrics are not enough
In this essay, we analyzed in detail why it is impossible to use growth metrics when assessing the impact of product changes. Growth metrics depend both on product metrics and on the influx of new users. It is difficult to separate these factors from each other.
Therefore, in order to understand how the changes you made to the product affect user behavior, you need to use product metrics (Retention, LTV, etc).
But problems arise when teams begin to use product metrics not only as a tool to assess the impact of changes on user behavior, but also as a tool to prioritize projects for future development.
Let’s take a look at an example:
We want to increase the LTV of our marketplace users in order to get more users through paid acquisition channels.
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One of the levers of influence on LTV is Retention
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People come back to the app when we send them push notifications about promotions and sales.
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Therefore, we should do more promotions and send more push notifications.
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To improve Retention we should also add more triggers for users to return the product.
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For this, we can add social functionality for users to communicate with each other inside the app.
This, of course, is an exaggeration, but when you try to think about product development through product metrics alone, sooner or later, the product idea falls into such structures.
In the previous essay, we discussed why the job of a product manager is to improve the efficiency of the solution to the user’s problem. This is the main lever of influence on user behavior and, as by extension, on product metrics.
