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One of the major challenges leaders of software companies face is giving their Board of Directors and investors the right data about how customers use the company’s software. The challenge is often that there is too much data to present.
A simplified metric – like a Net Promoter Score (NPS) for customer sentiment – is needed to measure the health of a product. But unlike NPS, which measures sentiment after customers have used a product or service, this score would serve as a leading indicator for the business. Enter the Product Engagement Score (PES).
PES: A meaningful metric in real-time
PES is a composite metric based on three components, all easy to identify in a product analytics tool:
- Adoption: An activation metric that measures how many users interact with the product. By understanding how (or if) customers adopt and use the product, a company has a clear sense of whether the product is delivering on its intended value. Companies can calculate the percentage of their product that is being used to understand how widely their product is being adopted by their customers.
- Growth: A measure of whether the product is acquiring and retaining new users faster than existing users are abandoning it. Growth signifies that more users want to use your product, a sign of a healthy product. To measure growth, companies can use Quick Ratio, which factors user growth, retention and churn, and accounts for how efficiently the product is growing.
- Stickiness: A measure of how frequently users come back to the product. Stickiness can be calculated in three different ways: monthly active users who return daily (DAU/MAU), weekly active users who return daily (DAU/WAU), or monthly active users who return weekly (WAU/MAU). You can measure the percentage of monthly active users who return to your product weekly, and, if you mostly serve business users, you can exclude weekends. The way you choose to measure stickiness will depend on what ideal engagement with your product looks like.
The beauty of determining a PES score is that companies don’t have to ask their users to tell them if they are finding value in the product. With PES, the data reveals itself in real-time.
From reactive to proactive thinking
PES is an exciting step for companies because it delivers actionable insights about user behavior well before a customer renews their subscription — giving companies the opportunity to ask customers what they could be doing better and make improvements based on the feedback.
For example, after a few months of measuring PES on a product, and observing lower stickiness than hoped, a product management team could make updates to the product to give users more reasons to engage with it daily. It can also be an engine for innovation, providing the foundation for conversations with customers, which can lead to important new features and product enhancements.
Sales and customer service teams can calculate an individual product engagement score for each of their customers to understand how engaged they are with a product and help predict the likelihood that they will renew their contract. Sharing these scores with customers during quarterly business reviews helps guide discussion around the use of the product. They can share ideas for how to drive better business outcomes and celebrate areas of focus that have resulted in a higher PES over time.
And, company leaders can share PES with their board, both for the previous quarter and to show trends over time. Product engagement score offers a concrete metric in the narrative around the success of a new feature or product. It can be used to effectively track whether a company’s investments in various functionalities are paying off.
PES has the potential for widespread impact as stakeholders like CEOs, CPOs, board members and investors attempt to assess how users engage with their software products. In the end, that’s what will drive a company’s value.
Todd Olson is CEO and cofounder of Pendo.