Revenue might seem like the most obvious metric for a growth team to focus on. After all, it’s the lifeblood of any business. However, focusing solely on revenue can lead to misleading conclusions and misguided strategies. Revenue as a metric fails to capture the nuances of user behavior, product engagement, and long-term growth potential. This myopic focus can also obscure the underlying factors that contribute to sustainable growth, leading teams to optimize for short-term gains at the expense of long-term success.
Revenue is a lagging indicator. It reflects the result of actions taken in the past, rather than providing real-time insights into current user behavior or product performance. By the time changes in revenue become apparent, it might be too late to address underlying issues or capitalize on emerging opportunities. Growth teams need more immediate feedback to iterate quickly and effectively.
An exclusive focus on revenue can encourage counterproductive behaviors. For example, teams might prioritize high-revenue customers, even if their overall engagement with the product is low or their likelihood of churn is high. This can lead to a skewed understanding of product-market fit and obscure the needs of a broader user base. Similarly, short-term revenue boosts—such as those from aggressive sales tactics or heavy discounting—can create unsustainable growth patterns that are difficult to maintain.
Given the limitations of revenue as a growth metric, what should growth teams focus on instead? A more holistic approach involves examining metrics that provide deeper insights into user behavior, engagement, and retention. These metrics can be grouped into three main categories: acquisition, activation, and retention.
Acquisition Metrics: These metrics measure how effectively a product attracts new users. Key metrics include the number of new sign-ups, cost per acquisition (CPA), and the conversion rate from visitors to sign-ups. Acquisition metrics help growth teams understand the effectiveness of their marketing efforts and identify the most promising channels for attracting new users. This is where Product teams that focus on virality shine! understanding the key efforts that ultimately lead to viral acquisition channels and fundamentally change the equation around acquisition cost and profitability.
Activation Metrics: Activation refers to the process of getting new users to experience the core value of the product. Metrics in this category include the percentage of new users who complete key onboarding steps, time to first value (how quickly users derive value from the product), and engagement rates during the initial period of use. Activation metrics are crucial for identifying friction points in the user journey and ensuring that new users become active users.
Retention Metrics: Retention metrics measure how well a product keeps users over time. Key metrics include the retention rate (percentage of users who continue using the product after a certain period), churn rate (percentage of users who stop using the product), and lifetime value (LTV) of a customer. High retention indicates a strong product-market fit and a loyal user base, both of which are essential for sustainable growth.
While as silly as it may sound, it comes down to simple math and setting up the Growth formula.
Here is an example of a simplified growth formula for Dropbox:
Monthly revenue = (New acquired users) x (Activation Rate) x (Subscription Rate) x (Monthly cost) + (Existing Existing subscribers) x (1 - Churn rate) x (Monthly cost)
by simply setting up this formula, you can start seeing which one of the levers will have the most potential and which would be a futile exercise of growth experiments
in Airbnb’s case, the growth strategy highlighted the importance of retention metrics. The company’s growth team discovered that users who completed their first booking were much more likely to become repeat customers. To enhance retention, Airbnb focused on ensuring that new users had a seamless and satisfying first booking experience. This included improving the search functionality, offering personalized recommendations, and providing robust customer support. By prioritizing the first booking experience, Airbnb increased user retention and fostered long-term loyalty, which translated into sustained revenue growth.
Adopting a metrics-driven approach that goes beyond revenue offers several long-term benefits for growth teams and the businesses they support.
Sustainable Growth: By focusing on metrics relevant to your growth formula, growth teams can build a solid foundation for sustainable growth. This approach ensures that new users are consistently attracted, effectively onboarded, and retained over time, creating a virtuous cycle that supports long-term success.
Better Resource Allocation: A more nuanced understanding of growth metrics enables teams to allocate resources more effectively. Instead of chasing short-term revenue spikes, teams can invest in strategies that drive meaningful engagement and retention, leading to more efficient use of marketing and development budgets.
Enhanced Product Development: Growth metrics provide valuable feedback on how users interact with the product. This information can inform product development efforts, helping teams prioritize features and improvements that enhance user satisfaction and drive growth. By aligning product development with user needs and behaviors, companies can create products that better serve their target audience and foster long-term loyalty.
Improved Decision-Making: A focus on holistic growth metrics leads to better decision-making. Teams can base their strategies on data-driven insights rather than gut feelings or assumptions. This leads to more informed and effective decisions that drive growth and improve overall business performance.
Revenue, while important, is not the most effective metric for growth teams to focus on. By decomposing the growth formula and prioritizing acquisition, activation, and retention metrics, growth teams can gain deeper insights into user behavior and product performance. This approach enables them to drive sustainable growth, allocate resources more efficiently, and make better-informed decisions. Real-world examples from companies like Slack, Dropbox, and Airbnb illustrate the power of focusing on these metrics to achieve long-term success. By moving beyond revenue and embracing a holistic view of growth, teams can build stronger, more resilient businesses that thrive in the long run.