3.7. Metrics

You decided to develop a product or service, but to simply decide — to have an idea of something — is not enough. You constantly need to analyse and measure all kinds of indicators, study the reaction and response of your users and clients, and refine and improve your creation on a daily basis. But how to know if you’re moving in the right direction? For that reason, we have metrics.

What Is a Metric?

Metric is a specific indicator that can be measured or calculated with sufficient accuracy. Metrics reflect how everything is going in business, they answer a lot of questions and help us make decisions. The most important thing is to know which metrics, how and when to focus on in order to make right decisions. There are a lot of different metrics that can be divided in terms of goals they are used to achieve or simply into different categories. Accordingly, we are going to examine 4 main categories of metrics — business, growth, product, and vanity metrics.

Business Metrics

All businesses, be it small or big, need to measure the need and effectiveness of their development at each stage, calculate costs and profits to be able to notice even small changes and take matters to resolve them timely. Business metrics allow to understand how much money your company earns and/or whether there are any financial problems that must be solved.
The first metric is income. That is all the money — the total amount of money — that a company receives from its main activities. With this metric all forms of cash and non-cash payments are taken into account. As a matter of fact, it’s an essential indicator of business performance. If there’s no gains, then there were no sales during an analysed period of time, which is a serious wake-up call. Stability and growth, on the other hand, show the need for your services or products and, therefore, the development and growth of your business.
The second metric is revenue. Revenue is what the company receives from the sale of products or provision of services in a month or a year. Accordingly, there are two types of revenue: ARR (annual recurring revenue) and MRR (monthly recurring revenue). Why are they important? It is exactly these two metrics that reveal whether your business is moving in the direction of success or is treading in place. If your monthly revenue is increasing from month to month, then customers do need your product and see value in it; if it’s not increasing or even going down, then it’s a clear indication that you need to work on your product more.
Finally, profit metric indicates the difference between how much money your earned and how much money you spend on producing, developing, improving, and/or buying something. It is the amount of money that is left after all necessary expenses have been paid.

Growth Metrics

The metrics that define growth are DAU, WAU, and MAU, which stand for daily active users, weekly active users, or monthly active users respectively. These are the metrics that allow to trace user activity for a certain period of time and react to the change in the users’ behaviour in a prompt manner. If, for example, your traffic increases, then your app or website is becoming more popular, people use it, are satisfied and are more willing to pay for additional features you have already or are about to introduce. If the number of active users drops, then there might be some kind of a problem that you need to find and solve.
Depending on the product or services you are providing, you may need to keep track of only one of the mentioned metrics. DAU should be monitored for products that people use on a daily basis; WAU should be measured on products that are used frequently; finally, MAU should be tracked on something that is used several times a month. On the other hand, if you wish, then you are not forbidden from tracking all 3 metrics — it’s just that each will reflect a different aspect of your users’ behaviour. DAU, for example, may show the immediate response to the launch of your product, while two other metrics might tell you about the stability of the demand for something you have introduced in the market.

Product Metrics

Product metrics are those that are closely related to the product and show how your product works and is used. This category of metrics allows to understand if customers appreciate, need and value your product and whether there are any problems with it.
The first metric in the category is LTV (lifetime value). It is the money that one user brings on average for the period of his “life” with our product. LTV is calculated by multiplying AOV (average order value) and Retention and is most often counted for a year.
Another metric belonging to the groups is C1, which is the conversion rate from registered or active users to payment. For example, if there were 100 newly registered users and only 5 of them purchased your product, then C1 is 5%.
The third metric, retention, measures the loyalty of your customers and your own ability to retain your users of clients, make them feel satisfied, as well as ensure that they make repeat purchased. As a matter of fact, retention can be associated not only with payments, but also with users’ visits. While payment retention displays the number of times a use paid for the product or service, the retention of users’ visits shows how many times a user visited our portal, how much addicted he is to our product and how often he will return to our product and to visit us.

Vanity Metrics

What does ‘vanity metrics’ mean? In short, vanity metrics are simple statistical data that might look very impressive but as a rule won’t translate to any meaningful results. The first metric in the category is number of installations or registrations. For example, some businesspersons might boast that they have 2 000 000 installations or registrations. At first sight the number seems really spectacular, but when given a thought, a lot of questions appear. Is it 2 000 000 installations/registrations in 5 years? In 1 week? Are those users active? The same is with the second metric — page views. A website owner says that he has 500 000 page views per day, month, or year. Okay, maybe people visited the website by mistake or came and immediately clicked ‘close’. Finally, time on the website. Some products or services may actually have some benefit from this metric, when, for example, you spend a lot of time on Facebook and get a lot of ads, there is a chance to try and measure the marketing efforts success. Though, for some products or services, Uber, for example, this metric is useless. When people need a ride, they open the app, get a car as fast as possible, and close the app after their order was confirmed. Anyways, vanity metrics is a kind of metrics that only has the looks, something we can sometimes boast about, but doesn’t really help to understand which strategy to choose or how to make a better decision.

All Things Considered

Metrics help to distinguish the subjective from the objective and make decision on data. Despite the fact that metrics are really important for your business growth, pay in mind that any metrics are just numbers, which by themselves don’t provide essential information. In order for them to be valuable and useful, all indicators must be viewed and assessed over time and not on the spot. It is necessary to choose a specific period of time and analyse how, and if, a specific metric changed during that time, how it influenced other indicators, and the possible reason why that has happen. Metrics depend on the goal of your business. Accordingly, before blindly analysing and measuring all metrics, think thoroughly what you want to achieve.