As a product manager, it is important to embrace business finance - as the metrics are quantifiable - they will have a direct impact on the company’s bottom line which is revenues.
By having a holistic view of the business finances - product managers will be able to understand in what way the products developed them are helping the business in terms of generating revenues. Better revenues mean product success and better growth opportunities for the business.
Successful products are not only helping us solve the customer's needs and wants - but they also help the business become profitable over time. That is why - it is important for product managers to have a solid understanding of the business finances.
Following are some key metrics that we need to be mindful of:
- Monthly Recurring Revenue (MRR)
- Average Revenue Per User (APRU)
- Customer Lifetime Value (CLTV)
- Customer Acquisition Cost (CAC)
- Return on Investment (RoI) & Breakeven
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is used by businesses to track the value (in terms of revenue) of their active customer accounts. This metric is one of the core metrics that are very essential for tracking business growth.
As Product Managers, we should be aware of MRR - and implement strategies to create better product experiences for the customers and thereby reduce the churn rate. Better MRR means Better Products and overall business growth.
MRR is calculated by multiplying the total number of paying customers by the Average Revenue Per Account (ARPA).
MRR = Number of Customers X ARPA
Average Revenue Per User (ARPU):
Average Revenue Per User (ARPU) shows how much revenue we are able to produce per user on a monthly and annual basis. We will normally calculate ARPU for existing and also new customers. ARPU is an indicator for us to measure business profitability.
A good ARPU indicates the customer's trust in our product and also helps us understand the customer base and their willingness to pay for the features.
ARPU is calculated as followed: Monthly Recurring Revenue (MRR) / Total Number of Accounts
A highly effective product manager is the one - who aligns their product strategies to take the right decisions on time every time while making sure their actions are having a positive impact on the company’s bottom line - finance.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) means - the amount of money that we need to spend to acquire a customer. The costs include a variety of expenses - business operational expenses, employee salaries, sales & marketing, and so on.
Customer Acquisition Cost (CAC): Total Costs - Business/Toral New Customers
What do you think about business finance knowledge for product managers? What are some of the key financial metrics you are tracking in your organization?
I am a product management professional based in Halifax, Canada and I write about technology, innovation, entrepreneurship, and business strategy. You can learn more about me at the following link: https://iamgrt.com
