Product Success Metrics | A Complete Tutorial

today we're going to learn how to set success metrics also known as kpis for any product this is arguably the most important skill you need to have if you're a product manager growth manager or a startup founder everything you do starts and ends with metrics that are used to measure the impact of your work so you got to make sure you're good at developing those metrics and don't worry this method works both for when you're building a whole product from scratch or if you're adding features to an existing product I use the term product for

both cases I'm going to start by explaining how this metric defining method works and then we're going to do a few examples of applying it to products in different categories like software as a service also known as SAS e-commerce and content platforms so you can see it in action and really understand how to apply it to your specific product you should think of your product metrics as a pyramid at the top you have one metric and below it you have a row of other metrics that contribute to that metric at the top then each of

those metrics have other metrics that contribute to them and so on you start with the first two rows when you're in the early stages of the product and then you add more as the product becomes more sophisticated it's kind of like how a startup works when it starts you have the founder CEO and maybe one or two co-founders then as the startup grows those people each build out their own teams that report to them those new people build out their own teams and so on the point is you start with the most overarching roles and

get more granular over time as your business grows and becomes more sophisticated the same thing applies for Success metrics of a product when we go through this method together it's going to feel like it only focuses on the top two rows of the pyramid and that's essentially true but the beauty of it is that you can carve out your own smaller pyramids out of this big pyramid and apply this method to them too which is why it works for both a whole product and for specific new features of that product you'll see exactly how as

we work through the examples at the end of the video this method focuses on six key metrics they are exposure onboarding which is optional activation engagement retention and focus in order to come up with these six metrics your very first step is to map up the user's Journey throughout your product at a high level specifically you need to focus on three key points within a typical user Journey first you have the point at which the user has their first exposure to your product for a typical web app this is when the user arrives at the

homepage the first time and hasn't done anything else for mobile app it's when they see the welcome screen after they download and open the app for the first time note that we are not counting the moment where they see an ad for your product or when they see it in the App Store we want the first moment that is actually a part of your product and you as a product owner have control over this is your exposure moment with most products you have to create an account and go through some onboarding steps in order to

use the product's core features some products creating an account is optional and something required at all this is why this particular key point is also optional you can add it if onboarding is required for users to get access to key parts of your product but not required otherwise for now we'll assume it's required so the second key point we'll identified is the completion of onboarding this is when you've input all your info your account is created and you're in the main part of the app but you still haven't done anything to get value out of

the app the third point we identify is the key action of your product an action that the user gets a value from and yes I know that most products have several of these but for now just pick the most important one if your product is a messenger then this would be the act of sending a message if it's a platform like YouTube this is the act of watching a video we call this the activation point now that we have these three we're going to start defining all our metrics you ready here we go the first

metric is called exposure and it's the number of users who made it to the exposure Point pretty simple this metric looks at the very top of your product funnel the beginning of your user journey and is more of a reference point for the other metrics that a metric you'll be managing the product to the second metric is onboarding Success which as you recall is optional this metric looks at the conversion rate from exposure to onboarding completion meaning the number of people who completed onboarding divided by the number of people who were exposed to your product

in some cases there is a lot that a user can do in between exposure and when they start all morning in which case you can modify this metric to instead be defined as the number of people who completed onboarding divided by the number of people who started it both approaches are fine either way this process is only done once per user which is why we separated from the other metrics it's also a Super Key part of the product experience where many products lose a lot of users so we want to make sure we can isolate

its performance the third metric is the activation rate this metric looks at the conversion rate from onboarding completion to when the user takes the key action so the number of users who activated divided by the number of users who completed onboarding remember that onboarding is optional so if your product doesn't have onboarding you can instead Define it as the number of people activated divided by the number of people who were exposed to the product either way the fundamental approach is the same you're looking at the conversion rate from the previous key point of the journey

to this one this is a concept that we repeat throughout this method so it's good to visualize it and remember it the fourth metric is engagement rate this metric looks at how much an active user is using your product because not all active users are equal for a messaging apps some users send a lot of messages some only send a few on YouTube some users watch a lot of videos some less just sending a message or watching a video means you're active so we need a way to measure how active and engage each specific user

is this metric is defined as a number of times key actions were done divided by the number of users who did that key action so in the messaging app example it's the number of messages sent per messaging user in the YouTube example it's videos watched per video Watcher note that we're not saying videos watched per user we're seeing videos watched per video Watcher this is because Dorman users can add a lot of noise to this metric if they get included in it and whether a user remains dormant or takes a key action is already covered

in our prior metric which was the activation rate so essentially our engagement metric looks at how active each active user is and then we have the retention rate retention is defined as a portion of your users who continue to take key actions in your product a fixed amount of time after they first activate it for example 30-day retention looks at the number of people who are still active 30 days after they activated divided by the number of users who activated in the first place you can use different lengths of time for your retention metric based

on your product but 30 days and 90 days are the two most widely used ones what we covered so far is that second row of the pyramid it covers the user Journey from when they're first exposed to the product through their onboarding and activation and finally whether they retained or churned but we also need to look at the top of the pyramid which is also known as the focus metric for the focus metric we look at your number of active users either daily weekly or monthly active users all of the metrics that we discussed earlier

contribute to this top metric in a keyway a drop in any of those numbers is going to result in a drop in this Focus metric and if your focus metric is growing and looking healthy your product is likely doing well but if it's not then you can use all these other metrics to isolate and diagnose the issues that are contributing to it whether it's that your onboarding flow is broken your users aren't activating or anything else so to recap we have exposure which is the number of people who got exposed to your product we have

onboarding completion which is the number of users who completed onboarding divided by the number of users who were exposed to your product or those who started onboarding this metric is optional depending on your product type then we have activation rate which is the number of people who took a key action divided by the number of people at the prior key point of the journey either exposure or onboarding completion next up is engagement which measures how engaged our active users are and is defined as the number of key actions divided by the number of active users

and last we have retention which is the number of people who continue to take key actions after a fixed amount of time such as 30 days divided by the number of users who activated in the first place and all of these metrics roll up to the focus metric which is your number of active users highly recommend taking a screenshot of both this slide and the previous one that showed the user journey and keeping them handy it summarizes everything we cover in this video and you can use it as a reference when you want to come

up with metrics for your own product now that we've covered the concept let's see it in action we'll start with a fictional SAS product imagine that you have a web app that allows you to create animations it requires you to create an account that gives you access to animating tools you can start a new project where you will be able to create drawings animate them and then publish the final result we'll call this product I don't know granimate sorry I'm not good with names and I just made this logo using a free logo generator but

it looks good enough for a fictional example so we can move on into setting success metrics for it now remember the first step of the process got to lay out the key points in the user's Journey the first one is the exposure point which in this case is the web apps home page so it would be when user gets to granimate.com and it hasn't logged in yet this section on web app of ours also requires you to create an account before you use it so we also Mark our point of onboarding completion which will probably

add a URL like app.granimate.com the key action user will take is creating an animation when someone creates an animation for the first time you can consider them an activated user now let's lay out the metrics the number of users who arrive at the home page granite.com is how we measure exposure the onboarding success is a number of people who completed onboarding divided by the number who started on morning the activation rate is the number of people who create an animation divided by the number of people who complete onboarding the number of animations created per active

user is the engagement rate the more animations a user creates the more engaged they are the retention rate is the percentage of people who create an animation after 90 days or more from when they activate I went with 90-day retention in this case because I'm imagining this is a product used by professionals who will likely stick around a bit longer than hobbyists and last but not least the metric they all lead up to the focus metric remember that we want active users so it's just a matter of picking between daily weekly or monthly the way

I always decide this one is that I base it on the usage pattern of the users since this is a professional product it'll likely get used a lot more in the weekdays than on the weekend so it follows a weekly cyclical pattern making weeks good units of time for comparing so our Focus metric will be weekly active users take a moment and review the formula for each metric all right now let's say you would decide you want to get a bit more granular you say Okay creating an animation means that you export a video file

containing your animation but what about the moment where the user starts creating an animation that's super important too that's totally fine that's also a key moment so just draw it on your user Journey map and treat it like you treat any other key point measure your conversion rate from onboarding completion to starting a project that can be your activation rate and then have a second similar metric that looks at your conversion rate from starting a project to exporting the final animation file see what I did here I took the method we were applying so far

and expanded it to address this use case with a very simple change while still following the overall same approach you added one more conversion metric you can even give it its own engagement rate by measuring the number of projects started per project starter essentially you can take that same activation engagement and retention metric and apply it to any key point in the user Journey now let's say you add a new feature to this animation platform you can create images using an AI image generator add them to your animation you want to see how this new

feature is performing so you take the same method and apply it to only this feature let's think of the user Journey throughout this feature there is a button or pop-up that the user sees informing them that this cool new AI image generator tool is an option that's your exposure point when you actually add an AI image generated by this tool to your animation that's your key action so your exposure metric is the number of people who saw the button or pop up for this feature your activation rate is the portion of those exposed users who

use the tool to add an AI generated image to their animation engagement rate is the number of images added per person who use the tool and your retention rate is what percentage of activated users still use this tool 90 or more days later the focus metric is again the number of weekly active users except here active is defined as anybody who adds an image to their animation this is an example of how this method works both for features in an existing product as well as a brand new product one question you might ask yourself is

why do we focus so much on using rates in our metrics instead of raw numbers like why do we look at onboarding completion rate and retention rate why don't we just look at how many users completed are more game or how many users stuck around after 90 days this is because we want to isolate the impact of that particular area of the product if we use raw volume of users As the metric then each metric will be heavily dependent on the ones before if your onboarding develops a problem then your activation and retention metrics will

go down to if your exposure metric goes down because your ad budget dropped then all your Downstream metrics will go down too but if you normalize the metrics by looking at them as rates for example by dividing the number of users who finished onboarding by those who started it then you'll be able to look at just how onboarding is performing exposure is the only exception here because it's the very top of the funnel so there's nothing in the product before that affects it so you can keep it as a raw volume and that's why we

look at conversion rate engagement rate and so on instead of looking at the raw number of users at each step all right let's do another example let's take YouTube as the product the home page is the start of the journey and watching a video is your key action onboarding isn't required for watching a video so we leave it out of this example so your exposure metric is the number of people at the home page your activation rate is the conversion rate from exposure to watching the first video your engagement rate is the number of videos

watched per video Watcher and your retention rate is the percentage of activated users who still watch videos after 30 or more days for the focus metric I'll go with daily active user because YouTube gets used by all sorts of people in all days of the week so looking at it on a daily basis is totally fine for our last example let's look at an e-commerce product because e-commerce products are a little different from most other products just imagine a site like Amazon the exposure point is when you arrive at the home page of the app

and the onboarding success rate is the conversion from beginning to the end of the account creation process the activation can be when you make your first purchase but a lot of times people may not buy from you not because the product is bad but because you just don't have the item they're looking for or you do and it's too expensive which isn't the fault of the product itself but rather it's inventory so I would look at the activation Point as when a user looks at a page for a specific item and then much like we

did with our animation example I'd add a second key action for when the user purchases something then you look at both the activation rate and also the conversion rate from looking at an item to buying that item your engagement rate will be your number of purchases per purchaser and your retention rate is the percentage of buyers who come back and make another purchase after 30 days your focus metric can be the daily active users because e-commerce products typically get steady traffic on a daily basis you can apply the same concept to pretty much any product

remember Frameworks don't work perfectly well for literally every scenario but they work pretty well for almost all of them but with a bit of modification just like the examples I showed you you can apply them to whatever difficult use case you're dealing with just got to do a few examples to get the hang of it and you'll be the master of setting products success metrics tricks if you're curious if you're applying this method correctly just post a comment under this video with a brief description of your product the key points in the user journey and

the metrics you came up with I'll reply to it and give you some feedback as I said earlier in the video learning to develop strong success metrics for your product is arguably the most important skill you develop as a product manager so make sure you dedicate time to learning It Well by doing examples if you want to get even better at it check out the link in the video description to a course that contains a whole section dedicated to product success metrics as well as other sections for how to measure those metrics using tools like

mixed spannel how to apply metrics to split tests how to analyze your results thanks again for tuning in and stay tuned for our future product analytics videos