Empowering Growth through Product Metrics

Assuming you already have a product that has a great product-market fit, meaning customers have an inherent demand for your product without any marketing effort, there are still a variety of approaches to take to achieve growth.

Is a massive big marketing campaign always the best way to grow?

How about shaping or creating a product that drives growth?

To do this, you need to develop a deep understanding of your customer base and what drives their behaviour. One way to do this is to analyze product metrics, such as usage frequency or customer retention rates.

This article will guide you through some unique approaches used by product-led companies as examples. By understanding what drives customer behaviour, you can then shape your product to better meet their needs and ultimately drive growth.

1. PRODUCT METRICS AND GROWTH METRICS

Product Metrics

A product serves as a solution to customers' problems, acting like a black box. When new customers interact with the product, it processes them into active users, profit, support requests, and more.

Product metrics show how the product converts new users into other metrics, such as:

1. Product awareness and product adoption (click here for more information)

2. Retention, which displays how the product converts new users into active users

3. Lifetime value (LTV), which measures the profit generated by new users for the entire duration of their service use

4. Purchase conversion, which indicates how the product converts new users into "higher value" customers (i.e., customers willing to pay for the product or generate revenue)

   
   

Growth Metrics

On the other hand, If product metrics describe the product itself, then growth metrics describe the business built around it. Growth metrics are derived from product metrics and the number of new users, which are the primary levers influencing overall business growth. Here are some examples of growth metrics:

1. DAU or daily active audience (new users * retention)

2. Profit: There are multiple ways to create a profit

   • Increase the number of new users to generate more revenue. This can be achieved through multiple marketing techniques such as growth hacking, word of mouth, or creating an exclusive community (such as Clubhouse). However, this strategy could lead to massive failure if the company fails to retain new users.

     
     

   

   
   

   • Raise the price of the product to increase revenue. While this may increase revenue in the short term, it could also result in more forced churn.

     
     

     For example, Lyft increased its prices significantly in 2017 in an attempt to increase profits and become more competitive with Uber. However, the price increases were met with backlash from Lyft riders, and many riders began to switch to Uber. As a result, Lyft's ridership declined, and the company's profits began to fall.

     
     

     

     
     

     In 2019, Lyft went public, but its IPO was a disappointment, and its stock price fell sharply. Lyft has continued to struggle financially, and it is now facing increasing competition from other ride-sharing companies, such as Uber and Didi.

     
     

   • My preferred approach, in this case, is to focus on acquiring users through product development while also considering their LTV lifetime value

     Profit can be calculated = (number of new users * LTV)

     
     

3. Number of new subscribers (new users * subscription conversion rate)

   
   

In short, I believe creating a product that fuels growth and paying attention to the connection between product metrics and growth metrics are both effective techniques that many successful product-led companies use.

2. LEVERAGE PRODUCT METRICS FOR GROWTH

Let's look at two examples of product-led companies that drive sustainable growth and eventually become profitable by leveraging product metrics such as retention and LTV (lifetime value).

CASE STUDY 1: Zilch - Europe's Fastest Unicorn (Became a Unicorn Within 9 Months of Full Launch)

Story: The big names in the industry, such as Klarna and Clearpay, entered the market within the last five years to offer customers an alternative to credit cards. For example, with Klarna's payment method, you can purchase anything on Amazon and split the transaction into four instalments over time.

Zilch has disrupted the BNPL (Buy Now Pay Later) industry by optimizing payment points and Ad monetization.

Zilch offers a similar alternative to borrowing money through the following:

1. Defined well product-market-fit: A virtual card that allows customers to make debit or credit purchases (pay in four instalments over time). It is flexible and can be used anywhere and anytime, reducing the lengthy process of integrating each merchant as it is with Klarna. This creates a great market fit.

   
   

2. Shaping the product to higher retention and higher conversion rate.

   Zilch offers in-app ads to unlock offers. Customers can go to the app and unlock any merchant they want to purchase from and get a 0% interest rate when using a credit product.

   • Higher retention by providing the benefit to the customer: Zilch turns the ad money paid by the merchant into savings on the interest/fee that the customer has to pay.

   • Knowing the cost and leverage by product feature in the phase of educating customers: It is also a smart move to save on 3DS costs when customers choose to unlock the offer in the app and verify their authorization to the transaction (2-3% of payment cost).

     
     

CASE STUDY 2: Uber turns to profit in July 2023

Story: Uber is an on-demand transportation technology app that allows customers to easily book the most convenient and fastest mode of transportation. Since its launch in 2009, Uber has disrupted the traditional taxi industry. Its strategy is to hack growth by acquiring as many drivers and customers as possible to adopt the product in the market, and then slowly tightening the rules to optimize the customer journey and experience.

The downside of this strategy is that for a long time, Uber burned through a huge amount of funds from big names to fuel their growth. As a result, they captured a large market share but struggled to become profitable. However, Uber turned a profit in July 2023. There are several good approaches to consider:

1. Run as lean as possible: Cut costs by 20% during COVID.

   
   

2. Focus on what's most important: Uber sold off non-strategic businesses, such as its self-driving unit, which held a $400M stake in Careem and a $392M stake in Zomato.

   
   

3. Only play games you can win: Leave markets where you're not the #1 or #2 player (e.g., abandon food delivery in Italy)

   
   

4. But most importantly, create a new product that significantly increases LTV: Uber leaned into UberOne, a Prime-like membership that includes:

• Awareness: In-app popup notifications and direct discounts on trips to encourage action.

• Adoption: A free trial for the first 1-3 months (depending on the market).

  
  

• Retention: Over 60% of customers continue to engage (and pay) the following month after their first purchase, resulting in a 12M member increase (2x YoY).

  • This results in lower margins but significantly higher retention and, therefore, a much longer LTV.

  • In the long run, this approach is more profitable and even turns a profit 2-3 years earlier than predicted.

    
    

In summary, while a big marketing campaign may seem like the obvious solution to drive growth, it is not always the most effective method. Instead, it is important to focus on creating or shaping your product to achieve higher retention rates and a longer lifetime value for your customers.

However, it is also worth considering other value metrics that can come into play, such as customer satisfaction, brand loyalty, and market share. By taking a more holistic approach to your business strategy, you can ensure long-term success and sustainability in a constantly evolving market.