Identify the metric that matters most — part 1
As a former Senior Product Manager at Amazon and Product Leader at Spocket, it is my job to improve products. When evaluating how to improve a product, the most challenging question I have to answer is what I am optimizing (for example, customer acquisition or engagement or retention) and how I should monitor it.
Every Thursday in both organizations, senior leaders meet as a part of the Weekly Business Review (WBR). During WBR, we review business health and in-progress initiatives. During these meetings, I quantify the business’s health through product metrics and report them. Before presenting to senior leaders, I must thoroughly understand the product metrics and the business’s overall health to ensure strong business performance. Thus, I learned how critical product metrics are and why they play a critical role in building great products.
What do you mean by product metrics?
Every company tracks specific success metrics considered acceptance criteria for a business's health. As a product manager, you want to know how your product performs, if your business is heading in the right direction, and what changes you should introduce to align with the leadership’s goals.
I aim to provide an overview of critical business metrics associated with different digital business models for PMs who are
- transitioning to the product role
- looking to understand various business models
- or preparing for product role interviews
Why are product metrics critical?
PMs must understand company strategy and priorities; there is no better metric than “The North Star” metric.
“The North Star is a leading indicator of sustainable growth and acts as a connective tissue between the product and the broader business.”
Amplitude North Star Playbook
As Lenny Rachitsky covered in this post (“Choosing Your North Star Metric”)
“Whatever companies choose as their guiding metric, all energy and brainpower will flow in that direction. This can be hugely effective — it has worked wonders for companies like Airbnb, Netflix, and Uber, especially early on — but it can also be dangerous. By focusing on a single metric for too long, teams risk short-term thinking, missing new opportunities, and sacrificing the user experience.”
Nailing the North Star metrics allows you to focus and prioritize the most critical initiatives. Thus, you want to start with your North Star metrics first. However, it is also crucial for PMs to understand other metrics associated with your business and be able to zoom in and out to look at the bigger picture. PMs that don’t use product metrics to prioritize their initiatives or do not know their metrics are at a disadvantage. They understand less about customers, take unnecessary risks, work harder instead of more thoughtful, and have less understanding about the impact of their work. Fortunately, it’s easier for PMs to cultivate metrics-driven culture, and I will talk about that later. PMs need to know what to track or monitor or, if they are looking for a new role, understand what metrics they want to optimize so that they can come up with innovative solutions.
Common Business Models
This three-part series aims to highlight standard business models in the industry. Companies use these models to monetize their products, and every PM could work on a product that belongs to the business models highlighted below. I will cover metrics associated with each in detail throughout Part 2 and Part 3.
The most common business models are
- SaaS — A SaaS company sells subscription-based licenses for a cloud software solution and will sell these to other organizations.
Example Products — Segment, Sendbird, HotJar, MixPanel - Subscription — Technically, subscription-based products are part of the SaaS bucket, but these companies regularly sell a product or service to consumers.
Example Products — Spotify, Disney+, HBO and HBO Max, Apple Music, Hulu, NetFlix, LinkedIn Premium, HBR, Amazon Prime - Marketplaces — A marketplace companies act as an intermediary in the sale of a good or service between sellers and buyers
Example Products — DoorDash, Airbnb, Uber, Lyft, Etsy, eBay - E-commerce — An E-commerce business is a business model where buyers and sellers exchange goods and services with consumers over the internet. Two common types are Business to Business (B2B) and Business to Consumer (B2C) e-commerce.
Example Products — Any eCommerce site such as ShopDisney, Staples, Target, BestBuy, Maceys - Enterprise — An enterprise company sells services or software to other businesses on a single-license basis. These contracts have a fixed term and designated contract value and come up with renewal at the end of each term.
Example Products — Docker, AWS, Google Cloud, FireEye, or any security-based products involving 3–6 months of integration (https://www.zscaler.com/). - Usage-based — A usage-based company sells services or products based on usage frequency. Usage frequency tells you how often an individual uses your product. Usage could be the number of users or seats, time spent using the product or service, and feature adoption.
Example Products — https://userpilot.com/ or https://prosperstack.com/pricing/ - Transactional — A transactional company enables a financial transaction on behalf of a customer and collects a fee.
Example Products — Stripe, PayPal, Coinbase - Advertising — An advertising company offers a free service to consumers and derives revenue entirely or majorly from advertisers. The most common companies include social networking sites or content sites.
Example Products — YouTube, Twitter, Yelp, Pinterest
Summary
Understanding product metrics allows PMs to know the business's health, adjust the direction in which they operate, and connect with company priorities. A thorough understanding of product metrics could help you ideate innovative solutions if you are interviewing for a new PM role. The overall knowledge of metrics is the most critical skill you could have to become the greatest PM ever. I will cover metrics associated with the above business models in the following parts of this series. Feel free to comment below if you want me to cover any other business model or share your perspective on product metrics.
