Why Product Engagement Metrics Are the Real Indicators of SaaS Growth

In the world of SaaS, growth is everything. It's what investors look for, what leadership teams aim for, and what employees work tirelessly toward. And it's not hard to understand why. In a business model where revenue compounds over time through recurring subscriptions, even small increases in key growth metrics can have an outsized impact on long-term success.

But here's the thing: not all growth is created equal. Too often, companies focus on surface-level metrics like total sign-ups or raw revenue numbers without digging into the underlying factors driving that growth (or lack thereof). They optimize for quantity over quality, chasing vanity metrics that look good on paper but don't necessarily reflect the true health of the business.

The reality is, sustainable SaaS growth is all about engagement. It's about how actively and consistently your customers are using your product, finding value, and achieving their goals. Because at the end of the day, that's what keeps them coming back month after month, year after year.

In this post, we'll dive deep into why product engagement metrics are the true north star for SaaS success. We'll explore:

1. What product engagement really means and why it matters

2. The key engagement metrics every SaaS company should track

3. How engagement impacts critical business outcomes like retention and expansion

4. Strategies for boosting engagement across the customer journey

5. Real-world examples of companies winning with an engagement-first approach

   
   

By the end, you'll have a framework for shifting your own growth strategy from surface-level metrics to the engagement indicators that truly move the needle. Let's jump in.

What Is Product Engagement and Why Does It Matter?

At its core, product engagement refers to the extent to which your customers are actively using and getting value from your software. It's a measure of how "sticky" your product is - how well it's become an essential part of your users' workflows and how frequently they return to it to get their jobs done.

To illustrate, let's use an analogy. Imagine your SaaS product is a gym membership. Just because someone signs up for a membership doesn't mean they're actually getting fitter and healthier. That only happens if they show up consistently, use the equipment, take classes, and push themselves to make progress on their goals.

The same is true for software. Just because a user creates an account and pokes around your product a few times doesn't mean they're extracting real value or forming a lasting habit. Deep, meaningful engagement is what separates the users who churn from those who stick around for the long haul.

So why is this distinction so important? It comes down to a fundamental truth about the SaaS business model: revenue is a lagging indicator, while engagement is a leading one. In other words, by the time changes in revenue manifest, the underlying causes have already been at play for weeks or months prior in the form of engagement (or disengagement).

For example, if a cohort of users starts engaging less frequently or stops using key features, that's an early warning sign that churn is on the horizon - even if they're still technically paying customers. Conversely, if usage of your stickiest features is increasing or users are crossing key adoption thresholds faster, that's a promising indicator of future expansion opportunities.

This distinction has big implications for how SaaS companies should approach growth. Rather than just focusing on top-of-funnel metrics like sign-ups or initial product activations, the real key is understanding and optimizing for the downstream behaviors that correlate with long-term retention and account growth.

As growth expert Brian Balfour puts it: "The seeds of churn are planted early, and those seeds are planted in your onboarding and your initial user experience. If you ignore that and just focus on 'growth,' you're actually fueling your future churn."

The Key Product Engagement Metrics to Track

So what does it actually look like to measure product engagement? What are the specific indicators SaaS teams should be tracking? While the exact metrics will vary based on the nature of your product and business model, here are some of the most common and critical ones:

1. Stickiness (DAU/MAU & DAU/WAU)

Stickiness measures the proportion of your monthly active users who are also active on a daily basis. It's a great barometer for how ingrained your product is in users' regular workflows.

To calculate it, simply take your number of daily active users (DAU) and divide it by your number of monthly active users (MAU). The closer that ratio is to 1, the stickier your product is. For example, a DAU/MAU of 0.2 means 20% of your monthly users are active every single day, while a ratio of 0.5 means half your users are.

As a rough benchmark, a DAU/MAU over 0.3 is generally considered very strong for SaaS products, though it varies by industry. Social media and communication apps like Facebook often have DAU/MAUs around 0.5-0.7, while more specialized enterprise tools may be closer to 0.2.

You can also calculate stickiness on a weekly basis (DAU/WAU) to smooth out any day-to-day fluctuations while still focusing on a shorter-term engagement window.

2. Feature Adoption

Feature adoption drills down into exactly how users are engaging with your product. Rather than just looking at overall usage frequency, it measures what percentage of your user base has adopted specific features - particularly those that tend to correlate with long-term retention.

Let's say you have an analytics product with three core features: dashboarding, data integrations, and custom alerting. You might find that users who adopt all three features within their first 30 days have significantly higher retention rates than those who only adopt one or two. Based on that insight, you'd want to track feature adoption closely and focus your onboarding and success efforts on driving users to that combination as quickly as possible.

As another example, say you identify a certain usage threshold for your stickiest feature that correlates with a major drop in churn risk - like creating 5 custom dashboards. You could then track what percentage of users hit that milestone at various points in their journey to gauge the health of each cohort.

3. Time to Value (TTV)

Time to value measures how long it takes new users to reach their first "aha" moment or success state with your product. In other words, how quickly do they go from initial signup to getting real value?

TTV is all about understanding and optimizing the onboarding and activation process to help users experience meaningful progress as efficiently as possible. The faster you can get them to that point, the more likely they are to stick around.

To calculate TTV, start by defining the key activities that represent initial success for your typical user. That might be something like:

• Inviting teammates

• Integrating with a third-party tool

• Publishing their first piece of content

• Running their first report

  
  

Then, measure the median number of days it takes users to complete each of those key activities within a given time frame (usually 7, 30, or 90 days post-signup).

For example, say the key activation event for your project management tool is creating and assigning the first task. You might find that users who complete that action on day 1 have an 80% retention rate, while those who don't complete it until day 14 only have a 20% retention rate. That insight would tell you that you need to find ways to simplify and accelerate that first project creation process as much as possible.

4. Session Metrics (Length, Interval, & Churn)

Digging a level deeper, session metrics help you understand the granular patterns of how users are engaging with your product on a per-visit basis. Some common ones to track include:

• Session length: How long do users spend in your app per visit? Longer sessions often indicate deeper engagement and more focused work.

• Session interval: How much time elapses between each session? More frequent logins often correlate with stickier usage and higher retention.

• Session churn: What percentage of sessions end without the user taking a meaningful action? Higher session churn can indicate points of friction or frustration.

  
  

Taken together, these session metrics paint a picture of the rhythm and cadence of how your product fits into users' daily lives. And by tracking them over time for different cohorts and segments, you can identify changes in engagement patterns that may be early warning signs of future retention issues.

5. Net Promoter Score (NPS)

NPS is a measure of how likely your users are to recommend your product to others. It's commonly assessed by surveying users on a scale of 0-10, then bucketing their responses into Promoters (9-10), Passives (7-8), and Detractors (0-6). Your final NPS is the percentage of Promoters minus the percentage of Detractors.

While NPS is more of an attitudinal metric than a behavioral one, it's still a critical indicator to track alongside your product usage data. That's because it gives you insight into the qualitative experience your most engaged users are having - the ones who are most likely to stick around, expand their usage, and evangelize your product to others.

By regularly surveying your user base and segmenting NPS by factors like tenure, plan type, use case, etc., you can keep a pulse on which parts of your customer base are most at risk and proactively intervene to boost engagement and loyalty.

6. Customer Lifetime Value (CLTV)

Finally, perhaps the ultimate measure of product engagement is customer lifetime value (CLTV): the total amount of revenue you can expect to generate from a customer over the course of their relationship with your company.

Engaged users are more likely to stick around longer, upgrade to higher-priced plans, purchase add-ons or expansions, and refer new business. All of those behaviors increase their lifetime value. Disengaged users, on the other hand, are more likely to churn quickly, downgrade their plan, or require extensive support resources - all of which drag down CLTV.

To calculate CLTV, you'll need to factor in metrics like:

• Average revenue per user (ARPU)

• Gross margin

• Churn rate

• Expansion rate

• Referral rate

By tying your product engagement metrics to CLTV, you can draw a direct line from usage patterns to revenue outcomes and build a strong case for continuing to invest in engagement as a growth lever. Which brings us to our next section...

How Engagement Impacts SaaS Growth

We've established that product engagement is important to track - but why, exactly? What are the tangible business outcomes that it influences? As it turns out, pretty much everything. Here are a few of the most critical:

1. Retention & churn

Churn is the bane of every SaaS business' existence. It's a hole in your bucket that forces you to constantly pour in more and more and more new users just to maintain your revenue, let alone grow it. And high churn rates make it nearly impossible to build a sustainable, profitable company in the long run.

Product engagement is one of the single biggest drivers (or predictors) of churn. When users are consistently extracting value from your product on a regular basis, they're far less likely to cancel their subscription - even in the face of price increases, market downturns, or competitive pressures.

In fact, a study by Price Intelligently found that users who are "very satisfied" with a product are 5x more likely to renew than those who are just "satisfied." And according to Bain & Co, a 5% increase in retention can increase profits by 95%.

The flipside is also true: when engagement starts to slip, it's often an early warning sign that churn is around the corner. A sudden drop in usage frequency, a decline in key feature adoption, or an increase in support tickets can all be canaries in the coal mine that a user or segment is at risk.

By keeping a close eye on your engagement metrics and quickly intervening when red flags arise, you can significantly reduce churn and increase the lifetime value of your customer base.

2. Expansion revenue

Churn is only one side of the retention coin. The other side is expansion revenue - the additional revenue generated from existing customers in the form of upgrades, add-ons, cross-sells, etc.

Expansion revenue is critical for SaaS companies because it's much cheaper and easier to grow by selling more to your current base than by acquiring net new customers from scratch. According to ProfitWell, the average SaaS company gets 20-30% of new revenue from expansion.

And once again, product engagement is a key driver of that growth lever. Highly engaged users are more likely to increase their usage over time, upgrade to higher-priced plans to unlock more features or volume, and purchase additional products or services. They're also more likely to share positive word-of-mouth and refer their colleagues and industry peers, bringing in even more expansion opportunities.

For example, Slack has seen tremendous success by making engagement and expansion the core of their growth model. By focusing relentlessly on driving daily active usage, they've been able to grow their average revenue per user (ARPU) at a clip of 20-30% per year. And their net dollar retention consistently hovers around 140%, meaning they're generating an extra 40 cents for every dollar of existing ARR each year just through expansion.

By contrast, disengaged users are far less likely to expand their relationship with your company over time. If they're barely using the features they're already paying for, why would they shell out more money for additional capabilities? And if they're not seeing the value of your product, they're certainly not going to recommend it to others.

3. Virality & network effects

Another powerful growth engine that's fueled by engagement is virality and network effects. This is when your product becomes more valuable to each individual user as more people adopt it - think social networks, marketplaces, communication tools, etc.

The classic example is the telephone: a phone is only useful if there are other people to call. The more people who own phones, the more valuable the overall phone network becomes to each individual user. That's a network effect.

Many SaaS products have built-in network effects that can create explosive growth when harnessed properly. But those effects only kick in when there's deep, sustained engagement across a critical mass of users.

Take Dropbox, for instance. Their core use case - file storage and sharing - becomes exponentially more valuable as more and more of a user's colleagues and collaborators adopt the tool. But that requires active, consistent usage. If people sign up for Dropbox but rarely log in or share files, the network effects never take hold.

That's why Dropbox's growth strategy has centered heavily around driving engagement within teams and organizations. Features like team folders, file requests, and integrations with other collaboration tools are all designed to get more people using Dropbox together on a regular basis. And the more that happens, the stickier Dropbox becomes for each individual user.

The same concept applies to SaaS products with viral invite or referral loops built in. Think of how tools like Zoom, Calendly, or DocuSign grow within organizations: one person starts using it and gets value, then invites more colleagues to join them. As those colleagues invite their own networks, the product spreads like wildfire across teams and departments.

But again, that viral growth is only possible if the initial users are highly engaged and getting real value from the product. If they just sign up and poke around a few times without forming a habit, they're unlikely to invite others or generate the enthusiasm needed to fuel organic word of mouth.

4. Customer acquisition cost (CAC)

Finally, product engagement has a big impact on one of the most critical SaaS metrics of all: customer acquisition cost, or CAC.

CAC measures how much it costs to acquire each new paying customer, taking into account all your sales and marketing expenses - ads, content, events, salaries, etc. And for most SaaS companies, it's one of the biggest line items on their P&L.

The beautiful thing about a highly engaged user base is that it can greatly reduce your CAC over time. That's because engaged users are essentially an extension of your marketing team. They're out there evangelizing your product, referring new business, and creating buzz and demand through their success stories.

This organic, bottom-up growth is far more cost-effective than traditional top-down demand generation efforts like paid ads or outbound sales. And it compounds over time as your user base grows and your brand equity builds.

Slack is a great example of this dynamic in action. In their early days, they spent very little on formal marketing, relying instead on organic virality and word of mouth driven by their highly engaged user base. As a result, their CAC was extremely low - around $1 per user, compared to the typical range of $50-200 for enterprise SaaS companies.

Over time, as their brand awareness grew and they moved upmarket, Slack did start to invest more in traditional demand gen and sales. But even then, their CAC remained relatively low due to the strong product-led growth engine they had built. And that efficient CAC played a big role in their ability to scale quickly and profitably.

Of course, the flip side is also true: if your product engagement is low, you'll likely need to spend more and more on marketing and sales to keep filling the top of your funnel and offsetting high churn rates. That's a tough position to be in, and it's why many SaaS companies with low engagement hit growth plateaus or struggle to reach profitability.

Strategies for Improving Product Engagement

Hopefully by now you're bought into the importance of product engagement as a key growth driver for SaaS companies. But how do you actually go about improving it? What are the strategies and tactics that can move the needle?

While the specifics will vary based on your product, market, and stage, here are some of the most effective ways to boost engagement:

1. Nail the onboarding experience

Nailing the onboarding experience is critical for setting users up for long-term engagement and success. It's the first impression your product makes and it sets the tone for how users will interact with it going forward.

Think of onboarding like the initial walkthrough you get when starting a new job or moving into a new home. It's the chance to get oriented, understand the lay of the land, and start forming habits and routines that will stick over time.

In the SaaS world, an effective onboarding experience should accomplish a few key things:

1. Communicate the core value proposition. Users should quickly understand what your product does, how it will benefit them, and why it's worth investing their time and effort. This is about more than just listing features - it's about connecting your solution to their real-world needs and goals.

2. Guide users to their aha moment. The aha moment is the point at which a user first experiences the value of your product in a tangible way. It's different for every product, but it usually involves completing a key action or achieving a meaningful outcome. Your onboarding should be laser-focused on getting users to that moment as quickly and frictionlessly as possible.

3. Establish key usage habits. Onboarding is the ideal time to shape user behavior and help them establish patterns of engaging with your core features. By proactively guiding them through key workflows and use cases, you can set them up to build a lasting habit of deriving value from your product on a regular basis.

4. Reduce friction and cognitive load. Learning a new software product can be overwhelming, especially for non-technical users. Good onboarding meets users where they are and reduces barriers to getting started. That might mean progressive disclosure of advanced features, in-app guidance and support, or the ability to import data or invite colleagues.

5. Personalize based on user needs. One-size-fits-all onboarding rarely works well, because different users have different needs and learning styles. The best onboarding flows are tailored to each user's role, goals, and context. That might mean customized product tours, persona-based use cases, or the ability to self-select a learning path.

   
   

Ultimately, the goal of onboarding is to help users experience success with your product as quickly and easily as possible. By frontloading value, reducing friction, and personalizing the experience, you can set users up to become highly engaged power users over the long haul.

To make this more concrete, let's walk through a specific example. Say you have a project management tool like Asana or Trello. Your core value prop is helping teams collaborate more efficiently and ship work faster.

A good onboarding flow for this kind of tool might look something like:

1. After signup, the user is immediately prompted to create their first project. The UI is simple and focused, with clear guidance on what information to include.

2. Once the project is created, the user is guided to invite their teammates. There are built-in integrations with common tools like Slack and Gmail to make this process seamless.

3. With the team on board, the user is prompted to create their first few tasks within the project. In-app tooltips explain key features like assigning due dates, adding subtasks, and commenting.

4. As tasks are created, the user is shown how to view them in different ways - as a list, a board, a calendar, etc. This helps them understand the flexibility of the tool and find the view that works best for their needs.

5. Once a few tasks are in flight, the user is introduced to key collaboration features like mentioning teammates, setting task dependencies, and attaching files. Contextual prompts encourage them to try these features in real-time.

6. After the first project is up and running, the user is shown how to create custom workflows, templates, and integrations to streamline their process. Links to help docs and tutorials provide additional guidance as needed.

   
   

Throughout this flow, the emphasis is on learning by doing. Rather than frontloading a lot of information or feature demos, the onboarding guides the user to take meaningful actions that deliver tangible value. And by the end, the user has not only experienced the core benefits of the tool firsthand, but they've established key usage patterns that set them up for ongoing engagement.

Of course, this is just one example, and the specifics of an effective onboarding flow will vary widely based on the product, user persona, and use case. But the overarching principles of communicating value, reducing friction, and driving meaningful action are universal.

A few other tactical best practices to keep in mind as you optimize onboarding:

• Keep it concise. Attention spans are short, especially for new users. Focus on the few key actions that deliver the most value, and ruthlessly cut anything extraneous. You can always surface advanced features later on.

• Provide escape hatches. Some users want guided onboarding, others prefer to explore on their own. Make it easy for users to skip or fast-forward through steps if desired. You can always re-surface tips later based on in-product behavior.

• Use progressive profiling. Don't overwhelm users with long signup forms or onboarding questionnaires. Collect information gradually over time, in context of actual usage. You can use product usage data to infer a lot about user needs and tailor their experience accordingly.

• Leverage social proof. Build credibility and motivation by showcasing how other users are finding success with your product. This could be in the form of case studies, testimonials, or even real-time usage data (e.g. "10,000 teams use Acme to ship projects faster").

• Make it a cross-functional effort. Onboarding isn't just a UX or product challenge - it's a company-wide initiative. Involve stakeholders from marketing, sales, customer success, and beyond to ensure a holistic experience across touchpoints.

  
  

Remember, onboarding isn't a one-and-done event. It's an ongoing process of helping users continuously find new value in your product as their needs evolve. By instrumenting your product usage data and constantly iterating based on user feedback, you can optimize onboarding to drive engagement, retention, and growth for the long haul.

2. Continuously resurface value

Getting users engaged is one thing - keeping them engaged over time is another. Especially for products that are more "set it and forget it" in nature (think: tax software, HR tools, etc.), it's easy for users to slip into dormancy after the initial onboarding period.

That's why it's critical to continuously resurface the value of your product on an ongoing basis. This means proactively reaching out to users with tips, insights, and recommendations that help them get more mileage out of your solution.

Some effective tactics for resurfacing value:

• Triggering feature callouts based on usage patterns. If a user has been actively using feature A but hasn't touched feature B, serve up a tooltip or email educating them on how B can extend the value of A. Personalized cross-selling like this is a great way to expand usage and prevent churn.

• Showcasing their wins back to them. Use data from your product to highlight the progress and ROI each user has achieved. Think annual reports with key milestones, or "you've saved X hours by automating Y process" type callouts. Reinforcing the time or money a user has saved with your product is a powerful motivator for continued usage.

• Celebrating power user behavior. As users take high-value actions in your product, recognize and reward them for it. This could be in the form of an automated congratulatory email, a special badge or status within the community, or even a spot on your website or newsletter. A little positive reinforcement can go a long way in making users feel successful.

• Segmenting tips and tutorials. Not all users need the same level or type of education - so segment your engagement comms based on key attributes like role, plan type, or lifecycle stage. A new user might need foundational 101-type content, while a seasoned vet would benefit from deep dives into advanced features or use cases.

• Inviting them into a beta or feedback program. Make highly engaged users feel extra valued by looping them in on your product roadmap and soliciting their input. Not only does this boost loyalty and investment in your brand, but it can also yield valuable insights for prioritizing development work.

  
  

The overarching goal here is to shift from passive user enablement to proactive user empowerment. By continually helping users discover new ways to get value - through data, education, or community - you can keep them engaged and loyal for the long term.

3. Leverage in-app guides and walkthroughs

Another powerful way to boost engagement is through targeted in-app guides and walkthroughs. These are overlays or tooltips that surface at specific points in the user journey to provide timely guidance and support.

In-app guides are particularly effective because they meet users where they are, in the context of their actual workflow. Rather than making users go out to a separate help center or support channel, they bring the assistance directly to the point of need.

Some common use cases for in-app guides:

• New feature announcements. When you launch a new capability, use a modal or callout to draw attention to it and explain how it works. You can even include a quick demo video or GIF to really drive the point home.

• Onboarding tooltips. As mentioned earlier, onboarding is prime time for in-app education. Use tooltips to introduce key concepts and guide users through the most important parts of your UI.

• Contextual help. If a user seems stuck or is taking a long time to complete a task, surface a relevant help doc or tutorial in real-time. This proactive support can go a long way in preventing frustration and churn.

• Upsell opportunities. If a user is nearing their usage limit or trying to access a gated feature, serve up a message explaining the benefits of upgrading. In-app upselling like this is far more effective than generic upgrade emails.

• Feedback requests. Want to gather input on a new feature or design? Trigger a micro-survey or feedback widget at relevant points in the product. Users are more likely to respond when the request is contextual to their current task.

  
  

Tools like Appcues, Userflow, and Pendo make it relatively easy to build and deploy these kinds of in-app guides without a ton of engineering lift. They integrate with your product analytics stack, so you can create targeted segments and track the impact of your guides on key engagement metrics.

Of course, the key to effective in-app guidance is subtlety and restraint. You don't want to overwhelm users with endless popups and tooltips, or you risk the dreaded "feature blindness". Be judicious in your use of guides, and always provide an easy way to dismiss or opt out.

When done right, in-app guidance can be a game-changer for engagement. By proactively addressing user needs and questions in real-time, you can remove barriers to value, boost feature adoption, and make your product an indispensable part of users' workflows.

4. Invest in a killer tech touch customer success program

While much of product engagement is driven by the in-app experience, that doesn't mean you should neglect the human side of the equation. Especially for B2B products with high ARR potential, a strong customer success (CS) function is critical for driving engagement and account growth.

The key is to focus on tech touch CS motions that are scalable and data-driven. Rather than trying to personally manage every account, your CS team should use product usage data to identify and prioritize the users who need the most attention.

Some tactics for an effective tech touch CS program:

• Proactive check-ins. Set up automated email or in-app message campaigns to check in with users at key milestones - 30 days post-signup, after completing a key workflow, etc. Share relevant tips and resources based on their usage patterns.

• Targeted re-engagement. Use product data to spot users who are slipping into dormancy and proactively reach out with an offer to help. A quick personalized email or phone call can make all the difference in getting a user back on track.

• Expansion conversations. Look for accounts that are consistently bumping up against usage limits or exploring advanced features, then trigger an automated "contact us to learn more" prompt. Your CS team can then follow up with a tailored pitch for how an upgrade or expansion can deliver more value.

• Renewal recommendations. As the end of a user's contract term approaches, have your CS team serve up a personalized renewal rec based on their usage data. Highlight specific ROI metrics or case studies to reinforce the value they've gotten and set up the conversation for an upsell.

  
  

The beauty of tech touch CS is that it's an engagement multiplier. By using data to inform and optimize every customer interaction, you can deliver the white glove experience of enterprise CS at the scale and efficiency of a self-serve SaaS business.

Of course, that doesn't mean you should automate everything. There will always be situations that require a human touch - big renewal conversations, tricky expansion negotiations, high-stakes onboardings, etc. The key is to be judicious in where you deploy your human capital, and use tech touch motions to lighten the load everywhere else.

Bringing It All Together with Fiscal Flow

We've covered a lot of ground in this post, from the theoretical (why engagement matters) to the tactical (how to actually drive engagement). But if there's one overarching takeaway, it's this:

Engagement isn't just a feel-good metric - it's a fundamental driver of SaaS growth and profitability.

The companies that succeed in the long run are the ones that make engagement a core part of their culture and operations from day one. They instrument their products to track usage data, they align their teams around engagement KPIs, and they relentlessly experiment and iterate to boost the metrics that matter.

But to do that effectively, you need a solid data foundation to build on. That's where Fiscal Flow comes in.

Our platform helps SaaS companies:

• Integrate product, billing, and customer data for a single source of truth

• Automatically calculate and visualize key engagement metrics like MAU, DAU, PQL, etc.

• Analyze the revenue impact and ROI of engagement initiatives

• Break down ARPU and LTV by user segment and cohort

• Model future growth scenarios based on engagement trends

  
  

Armed with these insights, you can make smarter decisions about where to invest in your product and go-to-market to maximize engagement and growth.

If you're ready to build a best-in-class engagement engine, we'd love to chat. Reach out to our team to learn more about how Fiscal Flow can help you turn engagement into your ultimate growth lever.