15 Important

Product Metrics

Explained

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 Average revenue per user (ARPU) 1
How much revenue a company makes from a

c u s t o m e r i n a s p e c i fi e d p e r i o d o f t i m e ( m o s t l y

m o n t h l y o r y e a r l y ) .

For transactions or pay per use business models:

A R P U = N o . o f o r d e r * A v e r a g e o r d e r v a l u e .

F o r S A A S c o m p a n i e s :

Yearly ARPU = No. of months active in a year *

monthly cost of plan, or monthly recurring

r e v e n u e ( M R R ) / N o . o f a c t i v e c u s t o m e r s

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 Cost to acquire a customer (CAC) 2
H o w m u c h a c o m p a n y s p e n d s t o

a c q u i r e a c u s t o m e r .

T h i s g e n e r a l l y i n c l u d e s m a r k e t i n g , s a l e s

a n d o t h e r c o s t s r e q u i r e d t o c o n v i n c e a c u s t o m e r .

B u s i n e s s e s w i t h l o w

“ a v e r a g e r e v e n u e p e r u s e r ” ( A R P U )

c a n n o t a ff o r d t o p a y a l o t t o a c q u i r e a n i n d i v i d u a l

c u s t o m e r , h e n c e t h e i r C A C

should be low.

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 Cost to acquire a customer (CAC) 2
F a c e b o o k a n d I n s t a g r a m h a v e a n e s t i m a t e d

ARPU of 35 USD, and rely heavily on free user

a c q u i s i t i o n t h r o u g h w o r d o f m o u t h , n e t w o r k e ff e c t s

a n d v i r a l i t y ( a l m o s t 0 C A C ) .

W h i l e h i g h A R P U p r o d u c t s l i k e

Amazon Web Services (ARPU in 1000s of USD), can

a ff o r d t o h a v e h i g h l y p a i d s a l e s t e a m t o a c q u i r e

c u s t o m e r s .

A R P U / C A C s h o u l d b e

sensible for sustainable growth (Money you earn/

M o n e y y o u s p e n d ) .

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 Customer life time value (CLTV) 3
CLTV is the ARPU measured for the entire life-span

of the relation between customer and the product/

company.

Churn rate (Attrition rate): 4

The rate at which your business looses customers

o v e r a p e r i o d o f t i m e .

20% churn over 1 month means your product will

l o o s e 2 0 c u s t o m e r o u t o f e v e r y 1 0 0 a f t e r a m o n t h .

C h u r n r a t e = ( N o . o f A c t i v e C u s t o m e r a t t h e

start of period - No. of Active Customer at the

end of period)/(No. of Active Customer at the

s t a r t o f p e r i o d )

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 Rate of conversion 5
The ratio of users numbers between two steps in

t h e u s e r j o u r n e y .

C o n v e r s i o n r a t e f r o m w e b s i t e t r a ffi c t o r e g i s t r a t i o n

w i l l b e 1 0 % i f o u t o f e v e r y

100 people who visit the website 10 are becoming

registered users.

Monthly reoccuring revenue: 6

The predictable amount of money a SAAS business

m a k e s i n a m o n t h f r o m i t s a c t i v e u s e r s .

Indicator of business size and health.

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 Daily active users/Monthly active users

(DAU/MAU)
7
Number of users who do a core action in your

p r o d u c t i n a d a y / m o n t h .

O n w h a t s a p p 7 0 0 m i l l i o n u s e r s s e n d / r e c e i v e

a t l e a s t o n e m e s s a g e e v e r y d a y .

For google.com the number of users who search

atlease once everyday are DAU, for facebook the

number of users who visit the feed atleast ones a

day would be DAU.

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 DAU/MAU ratio:
Indicator of stickiness of the product. High
8
engagement product (entertainment, social media,

messaging, news), have high DAU/MAU ratio.

Session duration: 9
How much time does a user spends in a session

with your product. Important for engagement

products in domains like social media (facebook)

a n d e n t e r t a i n e n t ( n e t fl i x , y o u t u b e ) .

Bounce rate/Drop off:

10
The percentage of people who go away from the

app-screen/website-app without doing the desired

action.

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 Retention rate:
11
The percentage of customer who keep on using

y o u r p r o d u c t .

Retention rate = (Users at the end of the period -

User acquired during the period)/Users at the

b e g i n n i n g o f t h e p e r i o d


E x a m p l e :

→ Zerodha has 1000 paid users at the beginning of

t h e m o n t h ,

→ Has acquired 200 more users during the month,

a n d

→ The number of active users measured again at

t h e e n d o f t h e m o n t h w e r e 1 1 0 0

→ Retention in this case would be = (1000 -

2 0 0 ) / 1 1 0 0 = 8 1 %

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 Number of user actions per session

12
S i g n i fi e s t h e e n g a g e m e n t d u r i n g a s e s s i o n .

Used in engagement centric products, number of

likes per session (Linkedin), number of video plays

per session (Youtube), number of ad clicks per

session (Facebook).

Net promoter score

13
A customer loyalty and satisfaction measurement

taken from asking customers how likely they are to

recommend your product or service to others on a

s c a l e o f 0 - 1 0 .

NPS = (% of people giving 9 or 10) - % of people

g i v i n g ( 0 t o 6 ) .

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 Average order value

14
T h e a v e r a g e r e v e n u e m a d e f r o m o n e o r d e r .

Average order value on amazon = Total money

spend in a month/Total number of orders in a

month.

Click through rate

15
Ratio of number of people clicking a button to

number of visiting the screen where button is

p r e s e n t .

M u l t i p l e b y 1 0 0 t o m a k e i t a p e r c e n t a g e .

U s e d f r e q u e n t l y i n m e a s u r e e ff e c t i v e n e s s o f a d -

c r e a t i v e s e t c .

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