A new benchmark for measuring how customers interact with software

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One of the biggest challenges software company leaders face is getting 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 — such as 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 use a product or service, this score would serve as a leading indicator for the business. Enter the Product Engagement Score (PES).

PES: a meaningful statistic in real time

PES is a composite metric based on three components, all of which are easy to identify in a product analysis tool:

Adoption: An activation metric that measures how many users interact with the product. By understanding how (or whether) customers adopt and use the product, a company has a clear idea of whether the product is delivering its intended value. Companies can calculate what percentage of their product is used to understand the extent to which their product is being adopted by their customers. Growth: A measure of whether the product is gaining and retaining new users faster than existing users are leaving it. Growth means more users want to use your product, a sign of a healthy product. To measure growth, companies can use Quick Ratio, which takes into account user growth, retention, and churn, and explains how efficiently the product is growing. Stickiness: A measure of how often users return to the product. Stickiness can be calculated in three different ways: monthly active users returning daily (DAU/MAU), weekly active users returning daily (DAU/WAU), or monthly active users returning weekly (WAU/MAU). You can measure the percentage of monthly active users who return to your product on a weekly basis, and if you mainly serve business users, you can exclude weekends. The way you choose to measure stickiness depends on what the ideal engagement with your product looks like.

The beauty of determining a PES score is that companies don’t have to ask their users if they find value in the product. With PES, the data reveals itself in real time.

From reactive to proactive thinking

PES is an exciting step for businesses because it provides actionable insights into user behavior well before a customer renews their subscription – giving companies the opportunity to ask customers what they could do better and make improvements based on the feedback.

For example, after a few months of measuring PES on a product and seeing less stickiness than hoped, a product management team might update the product to give users more reasons to use it on a daily basis. It can also be an engine for innovation and lay the foundation for conversations with customers, which can lead to important new features and product improvements.

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 predict the likelihood that they will renew their contract. Sharing these scores with customers during quarterly business reviews helps guide discussion about product usage. They can share ideas for better business outcomes and celebrate areas of focus that have led to a higher PES over time.

And business leaders can share PES with their boards, both for the previous quarter and to show trends over time. Product Engagement Score provides a concrete measure of the success story 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 such as CEOs, CPOs, board members and investors seek to assess how users interact with their software products. Ultimately, that will determine the value of a company.

Todd Olson is CEO and co-founder of Pendo.

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