In order to plan the measurements of a business, you need to begin with the what and the how. To begin, let’s cover some of the key concepts of analytics. First, let’s start with the basics and define what analytics are. I liked the definition found in the Accidental Product Manager Blog:
“Let’s define Analytics as consisting of the technologies, applications, people, and processes that allow a firm to transform their product data into actionable insights.”
Now that we have defined what analytics are, it’s time to cover some of the basic terminology used in Analytics:
Metrics – A metric is a standard of measurement. For example, when measuring the popularity of a website, we would need to use metrics such as # of visitors, # of traffic sources and etc. But here’s the catch. It is essential to differentiate between actionable metrics and vanity metrics. Actionable metrics are Accessible, Actionable, Comparable and are usually represented by Rates or Ratios.
Segmentation – A segment is a subset of your analytics data. For example, of your entire set of users, one segment might be users from a particular country or city. Another segment might be users who purchase a particular line of products or who visit a specific part of your site.
Funnels – Funnels are a way to visually measure how customers move through any series of events. Funnels can help answer questions like “Which A/B test got more visitors to convert to a paying customers through our free trial page?”
Cohorts – A cohort is a group of people who share a common characteristic over a certain period of time. We could group customers by how they were originally referred to your business and track how much money they spent over time. In the case of Saas software, cohorts can be used to track new user engagement by viewing how often users log in after signing up. You can rate your product features’ “stickiness” by how often customers use them and show customer loyalty in repeat purchases and renewals.