When Pendo first introduced the Product Engagement Score, we saw a need for a metric that told more of a story about a product than another popular number: Net Promoter Score (NPS). NPS is a powerful metric to gauge how users feel about your product, but it’s subjective, one-dimensional, and not a reliable predictor of company growth.
If NPS told a story about user sentiment, Pendo wanted to tell a story about how users were engaging with a product. We wanted an aggregate score that was complex enough to be accurate, and yet easy enough for non-data geeks to understand. In short, we wanted something quantitative, measurable, and actionable.
The result was the Product Engagement Score, a composite metric based on three components: adoption (How much of your core user base is using your product functionality?), growth (Do you regularly acquire and keep new users?), and stickiness (How often do users come back to your product?). Olivia MacDougal (Product Manager, Pendo) and Geoff Lewis (VP, Data Analytics, Pendo) spoke about the utility and evolution of PES at Pendomonium, Pendo’s annual product festival.
Product outcomes drive business outcomes
Since launching the Product Engagement Score, Pendo’s Data Science team has worked to show the ways a better PES translates to better business and financial outcomes for companies.
To quantify the financial benefit of a high PES, Pendo used its own business as a case study. Its data science team broke down all its customer contract renewal outcomes into one of three categories: churn (the loss of a customer), flat (the customer renewed but at a flat or marginally increased rate), or expansion (a gain of greater than 10% over the previous contract value). It then examined Pendo’s adoption, stickiness, growth, and PES as a whole with each of the companies in question. The team wanted to see if, using nothing other than PES metrics, it could predict whether a company would churn, renew flat, or grow its contract.
It found that PES is indeed correlated with customer retention. In the months leading up to a renewal decision, those companies for which Pendo had the highest Product Engagement Scores were most likely to renew and expand, those with a slightly lower Product Engagement Score were likely to renew flat, and those with the lowest PES scores correlated with churn. The separation in scores became apparent approximately six months out from renewal time, meaning companies can use PES as a leading indicator to tell when customers are engaging with their product vs. when they’re falling off, and plan interventions accordingly.
The future of PES
In breaking down the predictive power of PES and each of its components, we’ve found opportunities to make the metric even stronger here at Pendo. First, we’re making the adoption component more actionable by changing its underlying calculation. The new adoption metric will be based not on the percentage of visitors or users who’ve used any of your product’s core events—the key features, pages, and track events that drive value for your product—but rather on the average number of core events used by active users. This new calculation better represents feature usage, a metric that is both more meaningful and actionable, and is based on customer feedback.
We’re also changing the calculation for growth to make that component more stable. Until recently, we based it on active visitor or account growth over the previous period. But it will now be calculated by adding together new and recovered visitors, then dividing the entire sum by dropped visitors. This ratio, known as the Quick Ratio, is equivalent to the heartbeat of your product’s growth.
Finally, we’re making the features around PES even better. We’ve added a trending PES chart widget to dashboards so you can compare it to NPS and other useful metrics. We’ve also added an Accounts filter and PES drilldowns to help you dig deeper into each component of PES.
Dig into the data, and the value of Product Engagement Score is clear: It’s a meaningful metric that drives real business outcomes, and it’s one your company should start tracking today.
To learn more about how Product Engagement Score drives better business outcomes, check out the full session from Pendomonium below: