Chapter 17 – How to develop Product Growth model?
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Step 1 — Developing Equation to identify growth levers
Map the customer journey and assemble the growth model.
Let’s understand this with help of few examples –
Amazon (E-commerce) Revenue Growth =
Vertical Expansion x Product per Vertical x Traffic per Product Page x Purchase Conversion x Avg Purchase Ticket x Repeat Purchase Behaviour
[Source: Hacking Growth by Sean Ellis]
SaaS Revenue Growth =
(Traffic to landing Page x Trial Sign-Up x Trial to Paid Conversion) + (Active Paid User x Upsell Rate) + Retained Subscriber + Resurrected Subscribers
News Subscription =
(Website Traffic x Email Conversion x Active User Rate x Conversion to Paid Subscriber) + Retained Subscriber + Resurrected Subscribers
Airbnb Booking Growth =
Number of Hosts x Number of Room Listing x Number of Users x Number of Bookings x Repeat Bookings
Based on the above equation, you identify key metrics that are necessary for your product growth.
Step 2 — Identifying your core metrics — North Star metrics & Check metrics
North Star metric (NSM) is the one metric that everyone in your company can look up and be guided in the same direction.
It captures the core value that your product (or company) creates for your customers. It should represent the user’s engagement level as well as indicate the direction of the business.
However, North Star shouldn’t follow an unsustainable growth, which leads us to the second most important metric — Check Metric.
Check Metric constrains the NSM and ensures that the NSM grows in a sustainable and creates long-term value.
Let’s take a look at few example –
Step 3 — Segment the data to identify the core users & usage metrics
All data in aggregate is “crap”. Segment or die. – Avinash Kaushik
By diving into the data, you’ll find that the metrics are not same for all the users. This is where you should identify your core users and focus on them.
Who is a “Core User”?
- Core users come directly (not because of any deal or notification)
- Track % of users with direct traffic
- Traffic users with high engagement
- Core users are recurring users
- Track % of users who return weekly/monthly
- Core users want to share the product with others
- Measure K-Factor (Virality), % users who are referrers
You’ll find this post by Josh Elman quite helpful.
Determine Usage Metric for Core users
Usage Metric is based on the cohort of core users. It focuses on the question — “Are people using the product?”
Usage Metric = Core Action / Frequency
Core action — The key action that user performs (that relates to the Purpose of the product)
Frequency — number of times the “core” user performs the core action. Whether the usage of the product is at the frequency you expect.
Step 4 — User Interviews
Find out the “Why” from the core users. You should use both the data as well as directly question your users. You could use following questions to research your users:
- What prompted you to signup and use our product in the first place?
- What is the primary benefit you received from the product?
- Why did you come back to give the product another try?
- What did not meet your expectations or what was hard to figure out?
- What is it that got you using the product frequently?
- Have you recommended the product to anyone? (If yes, how did you described?)
- How disappointed would you be if the product no longer exists?
- What would you likely use as an alternative if the product was no longer available?
The above steps would help you prepare a model to grow your product.
Once you have your initial growth model ready, you will naturally begin to find questions to ask and start developing a hypothesis to test.
As you start testing your hypothesis, you start to adjust your model and gradually start to align your product and the team to the growth trajectory.
Next: Resource List
[Back to — Product Management 101]
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