Securing funding in today's competitive market requires more than a compelling vision or innovative product. Investors are increasingly data-driven, looking beyond surface-level pitches to the core metrics that indicate a product's potential for success. Highlighting performance metrics provide deep insights into user interaction and satisfaction, pivotal for convincing investors of your product's potential. Metrics prioritize valuable features, optimize resources, and track them to maintain credibility and secure funding.

To effectively position your startup for investment, these foundational metrics ensure a compelling narrative. It aligns your product vision with experienced leadership, making it highly appealing to potential investors-

• Product:  Developing a Minimum Viable Product (MVP) that showcases core functionality and collects user feedback is crucial for validating market readiness.

• Team: Highlight strong founder-market fit, a qualified founding team, and advisors with relevant expertise to add credibility and strategic guidance.

• Market: Show market traction with user growth, or early sales; demonstrate customer interest; provide market size data; and analyze competitors' unique value propositions.

• Business Model: Clearly outline your startup's revenue generation strategy, detailing pricing tactics and diversified income streams.

• Financials: Include a comprehensive overview of your financial performance and projections, covering key metrics such as revenue, expenses, and profitability.

Furthermore, in this blog, we now focus on product performance metrics. We'll use the example of Duolingo to illustrate how these metrics assess a product's success.

1. Active User Growth Rate

Active User Growth Rate is the percentage increase in active users over a specific period. This metric indicates the product’s ability to attract and retain users. A rising trend in active user growth suggests that the product is gaining traction and achieving a good market fit. Investors seek consistent, substantial growth rates indicating potential for ongoing user base expansion.

Let’s understand this with the example of Duolingo's Active User Growth Rate-

Active users in 2022 : 49.2 million

Active Users in 2023: 74 million

Growth in Active Users: 74 million - 49.2 million = 24.8 million users

Active User Growth Rate:

This means Duolingo's active user growth rate over the period was approximately 50.4%. The significant growth rate indicates that Duolingo is rapidly gaining popularity and more users are actively engaging with it. It is a strong indicator of its success and traction in the market.

2. User Stickiness Ratio

The User Stickiness Ratio is calculated by dividing the number of Daily Active Users (DAU) by the number of Monthly Active Users (MAU). A high User Stickiness Ratio shows that users frequently return to the product, indicating strong engagement and product appeal. This metric helps investors assess how compelling the product is. Moreover, it helps to evaluate how likely it is to retain users in the long term. A sticky product often leads to higher lifetime value and reduced churn.

To evaluate Duolingo's user engagement in 2023, we can calculate its user stickiness ratio. It indicates how often users return to the app on a daily basis. The user stickiness ratio is calculated as follows:

For Duolingo:

• Daily Active Users (DAU): 21.4 million users 

• Monthly Active Users (MAU): 74 million users

  This means Duolingo's user stickiness ratio is approximately 28.92%. High stickiness ratio indicates that a significant portion of Duolingo's monthly users are returning to the app on a daily basis, demonstrating strong user engagement and retention.

3. Session Length and Frequency

This metric measures the average duration and number of user sessions within a specific timeframe. Longer and more frequent sessions imply that the product is engaging and valuable to users. Investors consider session length and frequency to understand how much time users spend with the product and how often they return. High values suggest that users find the product worthwhile, which can lead to better retention and monetization opportunities.

Duolingo's Session Frequency and Length: Duolingo users spend about 15 minutes per day on the app in 2024, with a significant portion of users completing lessons daily.

This indicates that Duolingo's users are highly engaged, dedicating a consistent amount of time each day to learning languages on the platform. The regular daily usage underscores the app's effectiveness in fostering habitual learning behavior and maintaining user interest. Consistent engagement is a strong indicator of user satisfaction and the app's ability to provide value, making it attractive to investors looking for products with high user retention and activity.

4. Conversion Rate

The Conversion Rate is the percentage of users who complete a desired action, such as signing up, making a purchase, or subscribing to a service. This metric reflects the product’s effectiveness in driving user actions that are critical for business success. A higher conversion rate suggests that the product's user interface (UI) and user experience (UX) are well-designed and that the product meets market needs effectively. Investors use this metric to gauge the product’s potential for revenue generation and growth.

To evaluate Duolingo’s Conversion Rate in 2024, the desired action is wanting the users to complete upgrading from a free to a paid subscription.

• Total Free Users: 1,000,000 users on the Android platform.

• Completed Actions: 528,000 users upgrade to a paid subscription.

This means that out of every 100 free users on Duolingo's Android platform, approximately 53 users upgrade to a paid subscription. A higher conversion rate in this context indicates that a larger proportion of free users are finding value in the premium features and are willing to pay for them, reflecting positively on Duolingo's offerings and user experience.

5. Churn Rate/Retention Rate

The Churn Rate is the percentage of users who discontinue using the product over a specific period. A low churn rate indicates strong user retention and satisfaction, which are crucial for the sustainability of the product. High churn rates can be a red flag for investors, signaling potential issues with the product’s value proposition, user experience, or market fit. Reducing churn is essential for maintaining a stable user base and achieving long-term growth.

Calculating Duolingo’s Churn Rate from 2020 to 2023, 

• Users at the Beginning of the Period: Duolingo had 1,000,000 users at the beginning of the period in mid-2020.

• Those users Who Left During the Period: If the churn rate was 47% in mid-2020, it means that out of 1,000,000 initial users, approximately 470,000 users stopped using the app during that period.

• Users at the End of the Period: By early 2023, with a churn rate of 37% and assuming 1,000,000 initial users, approximately 370,000 users stopped using the app.

  Duolingo's churn rate declined from 47% in mid-2020 to 37% in early 2023. This improvement indicates that a smaller proportion of users are leaving the app over time, which is a positive trend. A lower churn rate suggests better user retention, meaning Duolingo has been successful in keeping more of its users engaged with the app over the years. This trend is a positive indicator for investors as it implies a stable and potentially growing user base, contributing to the app's long-term viability and revenue potential.

Additionally, there are several other product metrics to consider, such as Net Promoter Score (NPS) for measuring customer satisfaction and loyalty, and Customer Acquisition Cost (CAC) to evaluate the efficiency of your marketing efforts. 

In conclusion, neglecting these performance metrics can lead to misinterpreted user interactions, poor decision-making, and missed opportunities for improvement, ultimately harming your credibility and funding prospects. Thus, integrating these insights into your strategy ultimately ensures a comprehensive approach to attracting investors and achieving long-term success.

For additional insights on navigating the complexities of entrepreneurship, check out our blog on Essential Financial Metrics Every SaaS Startup Needs to Secure Funding.