The difference between business and product metrics
The difference between business and product metrics
In this post I'll be sharing the differences and why you should measure both types of metrics
When stakeholders ask for analytics to measure product performance, they often actually refer to classic SaaS metrics: monthly or annual revenue, average liftetime value, customer acquisition costs and more. Unfortunately, most of those metrics are lagging metrics - we will only find out whether we hit our goals when it’s too late to change the outcomes. This is where the importance of product usage metrics comes in.
Lag vs Lead
The most fundamental concept we need to understand first is the difference between lagging and leading metrics:
Lagging metrics are your results after a period of time. We tend to look at them retrospectively for example reviewing financials at the end of the financial year.
Leading metrics are able to tell you much earlier whether you’re on track or not. For example you might know that certain sales activity and volume each month tends to lead to certain financial outcomes. In other words, leading metrics are early indicators for success.
Business Metrics
In the context of digital products, business metrics should focus on the overall financial performance of the product. This typically includes popular SaaS metrics such as:
Monthly or Annual Recurring Revenue (MRR / ARR)
Average Customer Lifetime Value (LTV)
Average Customer Acquisition Costs (CAC), CAC payback time and more.
There is actually a ton of material on this topic, and many Product Managers and businesses got really good at operating based on those numbers. Those business metrics have been used heavily for a long time since this is what VCs and investors are most interested in.
Again those are typically lagging metrics as we only know the outcomes when the numbers for the month or the financial year are finalised.
Product Metrics
While lagging metrics are important to measure true business outcomes, we need to find leading indicators so we can course correct much earlier in case the product is underperforming.
Ask yourself: what actions do your users take in your product that will lead to your users getting the full value out of your product, and becoming long term retained customers?
One of the most important products metric to measure exactly this is your activation. Facebook’s former VP of Growth shared one of the most famous activation goals: when Facebook first launched they aimed for users adding at least 7 friends in the first 10 days after signing up.
To sum it up: your business numbers are typically lagging metrics, while your product usage analytics lead to your business goals if you measure them effectively and regularly. Both are very important, but you shouldn’t wait for the end of the financial year to know whether you’re on track.
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