If you’ve ever been to a board meeting for a company that sells a software product—which is nearly every company these days—think about what it was like. What metrics were presented and discussed? I can almost guarantee that the conversation centered around things like Annual Recurring Revenue (ARR), Net Revenue Retention (NRR), Customer Acquisition Cost (CAC), and churn rate.
While these metrics provide an important measure of business performance, they really only show half of the picture. More importantly, once you have these numbers, it’s usually too late to take any action to impact them.
Consider the scenario where you miss your revenue projection one quarter. What happens next? You can make changes to strengthen your pipeline and optimize marketing spend, but it could be several months before you’re able to course correct.
Leading vs. lagging indicators
In other words, business and financial metrics are lagging indicators: They measure past performance. In order to get ahead of things like customer churn or revenue loss, companies need to track leading indicators, which are measurable in a shorter timeframe and indicate future performance.
A key leading indicator for software companies is product usage. When product usage is decreasing, it can be a signal of low customer satisfaction or even potential customer churn. Data points like product usage over time, feature adoption, and workflow completion can serve as warning signs of product friction and issues—before it’s too late.
That said, companies should be tracking both leading and lagging indicators, especially when it comes to reporting business performance. By combining business and financial metrics with product usage metrics, you’ll be better able to build a successful product that leads to positive business outcomes.
But with so many product usage metrics to choose from, which one(s) should teams focus on? Enter: Product Engagement Score (PES).
What is the Product Engagement Score?
The Product Engagement Score is a composite metric that takes the average of a product’s adoption, stickiness, and growth—three metrics that are key to understanding product health. Our product team created PES to help product leaders boil product engagement down to a single number, making it easy to quickly diagnose how a product is performing. If and when PES shifts over time, teams can dig into each component to understand what’s causing the change.
Here’s an overview of the three metrics that go into PES:
Adoption: This is a user activation metric that measures usage of a product’s key features or “aha moments.” For PES, adoption is calculated by taking the average number of these key features, also known as Core Events, adopted by all active visitors or accounts.
Stickiness: This measures how many users return to your product on a regular basis, and can be calculated three different ways:
- Monthly users who return daily (DAU/MAU)
- Weekly users who return daily (DAU/WAU)
- Monthly users who return weekly (WAU/MAU)
Growth: This uses the Quick Ratio, which factors user growth, retention, and churn, and accounts for how efficiently the product is growing.
Using PES to make data-driven decisions
In addition to providing a clear measure of product engagement, PES is also especially useful in informing decision making. With PES, you can make data-driven product—and business—decisions like where to invest development resources, which features to sunset, and where to focus your team’s work.
When using Product Engagement Score to inform decision making, it’s important to think about what the data is actually signaling. Here are some examples to consider:
- Low adoption: If you see low or decreasing adoption, try to determine why users aren’t engaging with these key features. Do you need to make the features more discoverable? Do you need to create in-app guides to walk users through tasks and workflows? It’s also useful to re-examine your onboarding experience—are you introducing your product’s most important features during onboarding? Hint: You should be.
- Low stickiness: If stickiness is low, this could be a sign that you need to invest in your user experience because people are using the product once, but not returning on a regular basis. You might also want to reach out to customer-facing teams to understand what’s happening at a specific account to cause the drop in stickiness.
- Low growth: If you see low or stagnating growth, it could signal that you need to innovate and expand your product portfolio. For example, you might have a cash cow product—one that has a large market share in a slow-growing industry—and the market is getting capped. You don’t want to dedicate all of your resources to a product that’s never going to grow. This PES data can help support a recommendation to expand into new product offerings.
If you’re a Pendo customer, PES is already set up and ready to access in your Pendo account. You’ll be able to view PES data over time, at the user and account level, and drill into each component to get even more insight into your product engagement. What’s more, you can start using this data to take action, improve your product, and impact the business as a whole.
Ready to bring product usage data to the boardroom (and beyond)? Use this slide deck template to present your PES data effectively.