Y Combinator Question 27: What Metrics Are You Measuring to Understand How Your Product Function

This Y Combinator question delves into the specific metrics a startup monitors to evaluate product performance and user engagement.

Frederik Van Lierde

May 20, 2024

Y Combinator Question 27: What Metrics Are You Measuring to Understand How Your Product Function

Part of the series:
Y Combinator: 40 Questions and 40 Answers

Startups must select and track key performance indicators (KPIs) that genuinely reflect the health and success of the product.

1. Why Y Combinator Asks This Question

Y Combinator is interested in understanding what metrics you prioritize to gain insights into your product’s performance and user satisfaction.

The metrics you choose can indicate your focus areas, your understanding of what drives your business, and your ability to steer product development effectively based on user feedback and operational data.

2. How to Answer the Question

To effectively answer this, list 5–10 specific metrics that are crucial for your product and explain why each is important.

Discuss how these metrics help you make informed decisions, improve the product, and ultimately drive growth. Choose metrics that cover different aspects of your business, such as user engagement, financial performance, and operational efficiency.

For example, if your startup offers a SaaS tool for digital marketing, relevant metrics might include monthly active users, churn rate, customer acquisition cost, conversion rate, and average revenue per user.

3. How NOT to Answer the Question

Avoid mentioning metrics that are irrelevant or too generic without explaining their specific relevance to your product. Ensure not to focus solely on vanity metrics that look impressive but don’t provide actionable insights.

Each metric should be clearly linked to strategic objectives and product development needs.

4. An Example, Based on a Tech Startup

Let’s consider a tech startup, VideoStream, that provides a video streaming platform. Here’s how they might respond:

Monthly Active Users (MAU): Measures the overall stickiness and appeal of the platform, indicating user retention and engagement levels.
Churn Rate Tracks the percentage of users who cancel their subscriptions, vital for understanding customer satisfaction and longevity.
Customer Acquisition Cost (CAC): Evaluates the efficiency of marketing campaigns and the cost-effectiveness of acquiring new subscribers.
Conversion Rate: Measures the effectiveness of turning free trial users into paying subscribers, essential for revenue growth.
Average Revenue Per User (ARPU): Provides insights into the profitability and financial health of the business.
Stream Start-up Time: Tracks the technical performance, assessing how quickly videos begin playing after a user hits play — critical for user satisfaction.
Buffering Ratio: This helps understand the quality of service, as frequent buffering can lead to user frustration and higher churn rates.

Why These Metrics:
These metrics collectively give us a comprehensive view of both the financial health of our service and the quality of experience we are delivering. Tracking financial metrics like MAU, CAC, and ARPU allows us to gauge our growth and refine our marketing strategies, while performance metrics like stream start-up time and buffering ratio are crucial for ensuring a high-quality user experience that minimizes churn. Y Combinator looks into the metrics startups track to measure how well their products are performing and how engaged their users are, emphasizing the need to choose key performance indicators that truly reveal the business’s health and growth.