What are the metrics to measure product-led growth?

Product-led growth is a business strategy that focuses on using the product itself as the primary driver of customer acquisition, retention, and expansion. It is a powerful way to scale a business because it relies on creating a product that customers love and that naturally attracts new users. However, to maximize the potential of product-led growth, businesses need to measure the right metrics. In this blog post, we'll discuss the key metrics to measure product-led growth and how to use them effectively.

1. Activation Rate

Activation rate is the percentage of users who have completed a key action that indicates they are fully onboarded and engaged with the product. For example, if you have a SaaS product, activation rate could be the percentage of users who have completed their profile and created their first project. If you have an e-commerce product, activation rate could be the percentage of users who have made a purchase.

Measuring activation rate is important because it tells you how successful your onboarding process is at converting new users into active users. If your activation rate is low, it means that your onboarding process needs improvement, and users are not engaging with your product as much as they could be.

2. Retention Rate

Retention rate is the percentage of users who continue to use your product over time. Retention is a critical metric because it is a strong indicator of whether your product is providing value to your customers. If your retention rate is high, it means that your customers are finding your product useful and are likely to continue using it.

Measuring retention rate is important because it tells you how successful your product is at retaining customers. If your retention rate is low, it means that your product needs improvement, and customers are not finding enough value to continue using it.

3. Net Promoter Score (NPS)

Net Promoter Score (NPS) is a metric that measures customer loyalty and satisfaction. It is calculated by asking customers how likely they are to recommend your product to a friend or colleague on a scale of 0 to 10. Customers who score 9 or 10 are considered promoters, while customers who score 0 to 6 are considered detractors.

Measuring NPS is important because it tells you how likely your customers are to recommend your product to others. If your NPS is high, it means that your customers are satisfied with your product and are likely to recommend it to others. If your NPS is low, it means that your customers are not satisfied with your product, and you need to make improvements.

4. Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the cost of acquiring a new customer. It includes all the costs associated with acquiring new customers, such as marketing and sales expenses. Measuring CAC is important because it tells you how much it costs to acquire a new customer and whether your customer acquisition strategy is effective.

If your CAC is high, it means that your customer acquisition strategy is not cost-effective, and you need to make changes to reduce your costs. If your CAC is low, it means that your customer acquisition strategy is effective, and you can focus on scaling your business.

5. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is the total amount of money a customer is expected to spend on your product over their lifetime. Measuring CLV is important because it tells you how much revenue you can expect to generate from each customer.

If your CLV is high, it means that your product is providing significant value to your customers, and they are likely to continue using it for a long time. If your CLV is low, it means that your product needs improvement, and customers are not finding enough value to continue using it.

6. Viral Coefficient

Viral coefficient is a metric that measures how many new users are generated by each existing user. It is calculated by dividing the number of new users by the number of existing users. Measuring viral coefficient is important because it tells you how effective your product is at generating new users through word-of-mouth.

If your viral coefficient is high, it means that your product is highly viral, and users are recommending it to their friends and colleagues. If your viral coefficient is low, it means that your product is not generating enough word-of-mouth, and you need to make improvements.

Conclusion

Measuring the right metrics is critical to the success of a product-led growth strategy. By measuring activation rate, retention rate, NPS, CAC, CLV, and viral coefficient, businesses can understand how their product is performing and make data-driven decisions to improve it. However, it's important to remember that metrics are not the end goal. The end goal is to create a product that customers love and that naturally attracts new users. By using the right metrics, businesses can achieve this goal and scale their business through product-led growth.

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