Self-study|IT|Pre-Int|Lesson 17: Metrics and unit economics

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Match the descriptions to the pictures


Choose all the options which you think are correct


Complete the definition of a product manager


💡 Today we’re going to discuss product managers’ responsibilities in detail.

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Tick the correct product managers’ duties according to the category


Brainstorm the criteria for evaluating the work of a product manager, then listen to a business expert and compare your ideas. Complete the second column

How is a product manager evaluated? There are four main things that must be assessed. First, launch dates. If the launch is late, the company will experience direct or indirect losses. Secondly, profit. After launching the product, the product manager monitors sales and solves problems. If the planned income is not achieved, they find out why it happened and whose fault it is. If the problem is in the product, a plan of improvement is drawn up. Then, pricing. Product managers should be involved in the process of making pricing decisions because they understand how relevant a product is to the market, and the price which the market would be willing to pay. And finally, the quality of new product ideas. Remember that no one needs ideas per se, product managers are in charge of the calculations, protection and implementation of the ideas. If this process is flawless, it means that a product manager performs their job well.

How is a product manager evaluated?

Your ideas The business expert’s ideas

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Look at the picture and say if you know any of these words. Explain them briefly. Then listen to the Skytech product manager and choose the topics he mentions

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Presenter Product Manager

Presenter: Welcome to our podcast Complex Things In Simple Words, and today we’re going to interview Mike, a product manager at Skytech. Hello.
Product Manager: Hi, thanks for the invitation.
Presenter: We’ve invited you to talk about unit economics. It seems like these days it’s impossible to be a good product manager without understanding unit economics. But what is the meaning of this popular term?
Product Manager: Unit economics is defined as the direct revenues and costs associated with a particular business model, and are specifically expressed on a per-unit basis. To put it simply, unit economics are basic financial building blocks of a business. It is the starting point for management, outside analysts, investors, and other stakeholders to analyze, evaluate or assess a company’s financial performance.
Presenter: So, what does the «unit» mean here?
Product Manager: Depending on the company and its business operations, the «unit» can have different forms. For example, if we speak about a merchandising or a manufacturing company, the unit is the customer. If we speak about service providers, then one client represents one unit. The unit of an internet service provider is a user, and so on.
Presenter: Okay, we have defined the «unit», what is our next step?
Product Manager: So, it’s time to identify the exact unit economics of the business. Let’s continue speaking about the internet service provider. This company’s unit is the user, and it has two fundamental unit economics. The first is CPA — the cost per acquisition.
Presenter: Sorry, can you explain what it is?
Product Manager: Sure. CPA is the answer to the question «How much will the company spend in order to get one user to choose its internet service?»
Presenter: Got it. What’s the other fundamental of unit economics?
Product Manager: That is customer lifetime value, and in simple words, it’s how much money the company will earn from one user for the entire amount of time they use its internet service.
Presenter: I guess that is not the last step.
Product Manager: Of course, not. Now, when you know your unit and the levels of unit economics, it’s time to calculate and build your unit economic model. There are two major inputs: inflow and outflow.
Presenter: Inflow and outflow inputs? Could you explain that, please?
Product Manager: The inflow inputs are revenue and duration. Revenue refers to the income that a company earns from its normal operations or business activities. The most common revenue drivers include the customers, the frequency of purchase, the size of the transaction and the price. Duration refers to the average customer or user lifetime with your company.
Presenter: Okay, and what about outflow inputs?
Product Manager: Here we can speak about the cost per acquisition or the cost to acquire a customer, which is the initial cost spent by the business to get a customer. These costs will vary from industry to industry, but basically, they include money spent on selling, marketing and persuading a customer to buy a company’s product or service.
Presenter: To be honest, all this still sounds quite difficult, so I need to ask — is it really so important?
Product Manager: Sure. You know — some people say that product managers can predict the future, and we really can because we know unit economics. So we can calculate the return on investment and run profitability tests. Unit economics and metrics may scare some people at first, but believe me, if you dive deep into this topic, you’ll see how logical and helpful it is.
Presenter: Metrics … that sounds like the topic of our next program! Could you come again and tell us more about them?
Product Manager: I’d be happy to.



Listen to the recording again and make notes to answer the questions

Presenter Product Manager

Presenter: Welcome to our podcast Complex Things In Simple Words, and today we’re going to interview Mike, a product manager at Skytech. Hello.
Product Manager: Hi, thanks for the invitation.
Presenter: We’ve invited you to talk about unit economics. It seems like these days it’s impossible to be a good product manager without understanding unit economics. But what is the meaning of this popular term?
Product Manager: Unit economics is defined as the direct revenues and costs associated with a particular business model, and are specifically expressed on a per-unit basis. To put it simply, unit economics are basic financial building blocks of a business. It is the starting point for management, outside analysts, investors, and other stakeholders to analyze, evaluate or assess a company’s financial performance.
Presenter: So, what does the «unit» mean here?
Product Manager: Depending on the company and its business operations, the «unit» can have different forms. For example, if we speak about a merchandising or a manufacturing company, the unit is the customer. If we speak about service providers, then one client represents one unit. The unit of an internet service provider is a user, and so on.
Presenter: Okay, we have defined the «unit», what is our next step?
Product Manager: So, it’s time to identify the exact unit economics of the business. Let’s continue speaking about the internet service provider. This company’s unit is the user, and it has two fundamental unit economics. The first is CPA — the cost per acquisition.
Presenter: Sorry, can you explain what it is?
Product Manager: Sure. CPA is the answer to the question «How much will the company spend in order to get one user to choose its internet service?»
Presenter: Got it. What’s the other fundamental of unit economics?
Product Manager: That is customer lifetime value, and in simple words, it’s how much money the company will earn from one user for the entire amount of time they use its internet service.
Presenter: I guess that is not the last step.
Product Manager: Of course, not. Now, when you know your unit and the levels of unit economics, it’s time to calculate and build your unit economic model. There are two major inputs: inflow and outflow.
Presenter: Inflow and outflow inputs? Could you explain that, please?
Product Manager: The inflow inputs are revenue and duration. Revenue refers to the income that a company earns from its normal operations or business activities. The most common revenue drivers include the customers, the frequency of purchase, the size of the transaction and the price. Duration refers to the average customer or user lifetime with your company.
Presenter: Okay, and what about outflow inputs?
Product Manager: Here we can speak about the cost per acquisition or the cost to acquire a customer, which is the initial cost spent by the business to get a customer. These costs will vary from industry to industry, but basically, they include money spent on selling, marketing and persuading a customer to buy a company’s product or service.
Presenter: To be honest, all this still sounds quite difficult, so I need to ask — is it really so important?
Product Manager: Sure. You know — some people say that product managers can predict the future, and we really can because we know unit economics. So we can calculate the return on investment and run profitability tests. Unit economics and metrics may scare some people at first, but believe me, if you dive deep into this topic, you’ll see how logical and helpful it is.
Presenter: Metrics … that sounds like the topic of our next program! Could you come again and tell us more about them?
Product Manager: I’d be happy to.


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Put the questions under the correct heading

You are a product manager in your company. Spin the wheel and answer the question in the text area below

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Listen to the recording and explain the given abbreviations and terms

Presenter Product Manager

Presenter: Good morning. Here is your favourite podcast Complex Things In Simple Words. Today, as promised, our guest is once again Mike, who is a product manager at Skytech. Hi, Mike.
Product Manager: Hello.
Presenter: Last time, you already started speaking about metrics, and we’ll continue today. You know, we’ve received a lot of positive feedback on our last episode with you, our listeners have learned a lot about the basic concepts of unit economics. So they are really excited about today’s episode.
Product Manager: Oh, I’m so happy about that!
Presenter: Okay let’s start. Why do we need metrics?
Product Manager: The motto of product managers is «You can’t manage what you don’t measure». So we can’t imagine our life without metrics.
Presenter: What exactly should be measured?
Product Manager: First and foremost, CAC.
Presenter: CAC?
Product Manager: Cost of customer acquisition. It’s very important to know how much you spend acquiring, well, getting new customers.
Presenter: Oh, you mentioned it last time. How can we do it?
Product Manager: To measure CAC, add up everything you spend annually on marketing, including staff salaries, as well as the cost of pay-per-click advertising, marketing agency fees, contractors, the cost of software, and so on. Next, look at how many customers your marketing efforts bring in each year and divide your cost by that number. That will give you the average amount you spend to bring in each client, that’s CAC.
Presenter: Okay, what other metrics are essential?
Product Manager: In addition to calculating the cost of customer acquisition, you also need to work out how much each customer is worth to your business. This is known as the customer lifetime value or CLV. Put simply, this is the value that a customer will contribute to your business throughout the entire time they work with you as an active client. You can calculate CLV using either historical data or a predictive analysis that considers previous transaction history as well as behavioral indicators.
Presenter: CAC, CLV, what else?
Product Manager: Once you have calculated these two metrics, you can subtract the customer acquisition cost from the lifetime customer value to calculate the net customer worth. This is the amount of revenue that your business earns from each client, after taking the marketing costs into account.
Presenter: Why is it important?
Product Manager: Because it allows you to define your return on investment (ROI) and develop a more effective growth strategy for your business.
Presenter: It’s very interesting, but, unfortunately, the time is nearly up. Can you tell us about any other essential metrics?
Product Manager: I’ll tell you about conversion rates. These numbers are critical because they can help determine where to focus your efforts and how to get the most out of marketing and sales. There are two ways you can grow your business using digital marketing — you can either increase the total number of visitors to your website or improve conversion rates. In general, it is easier to control your conversion rates than bring more people to your site.
Presenter: Thank you for your answers. It was really informative.



Mark the sentences as True, False or Not Stated

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Read the rules and play the game «Improve the profit margin»

The rules:

  • Roll the dice.
  • Click on the task with the corresponding number.
  • Dо the task.
  • For each fully correct answer you will get $300. That is you can earn $1,800 maximum.
  • However, each answer consists of 3 points. Failing 1 point, you’ll lose $100.
    For example, if you get right 2 out 3 answering Question 1, you’ll earn $200.
  • You should calculate the total sum yourself.



IT mentor2

Heeeey! Better luck next time. I think it would be a good idea to re-read the definitions and short texts from this game to remember some useful expressions better.

IT mentor2

Well, it could be better, but still I’m really glad for you 😉 I think reading and listening more on the topic of product management will help you boost your vocabulary.

IT mentor2

Wow! Richie rich! I’m really, really proud of you!!!

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Match the words with their definitions to revise the useful vocabulary of the lesson


Complete the sentences with the words from the previous exercise

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Read the text and match the 4 elements with the questions they answer

Marketing is one of the most beneficial business knowledge areas for product managers. The thing is, the product’s amazing software and great design will be wasted if it’s never discovered or used by the people it brings the most value to.

Let’s explore one of the areas of marketing, the marketing mix.

The Marketing Mix

The marketing mix is a core marketing model to create a marketing strategy for the product. It consists of 4 Ps:

  • Product
  • Place
  • Price
  • Promotion

Each element is linked to other business areas such as advertising, branding, public relations, etc. These areas are general categories to think about when analyzing products from a business marketing standpoint.

The product is about satisfying your customers and users’ needs and finding ways to make this process unique.

The place is about knowing where your customers will look for your product and putting it there. This is typically geared towards physical products involving supply chains and distribution channels. However, software products and solutions can also have various distribution channels (e.g. web, mobile and desktop are all different places where a user might use your product).

The price is about managing the pricing model for your product. Various considerations should be made, including what goals the company is trying to achieve, how to price different user segments, and what ways the product can be monetized. There are also various types of pricing strategies to set the actual price value, which are beyond the scope of this article.

The promotion is about reaching out and acquiring users. This is where advertising comes in, which is extremely useful to product managers. Important advertising concepts include marketing channels, which are mediums users can be acquired from (e.g. Facebook, Twitter, etc.), and advertising metrics.

Since advertising is about awareness and engagement, concepts here can be applied to features (e.g. measuring conversion rates for a shopping cart feature), which is why it’s a great benefit to product managers.



Read the four stories of the worst implementations of the 4 Ps of marketing and choose the elements that weren’t applied correctly

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Complete the phrases which will help you express your opinion in the next exercise


Read the task and prepare your speech on the topic «Product management in my company»

Read the questions and interview the product manager in your company or (if you are a PM) answer the questions yourself.

  1. What are the main responsibilities of the product manager in your company?
  2. What is the unit of your company?
  3. What key metrics are measured in the company?
  4. What hard and soft skills are important to do the job well?
  5. What are the main challenges of this job?

Record your speech. Use the voice recorder


Look at your roadmap and see your progress

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Урок Homework Курс
  • Let's start!
  • The duties of a product manager
  • Complex things in simple words
  • Useful questions
  • What are metrics?
  • Let's play a game!
  • Homework 1
  • Homework 2
  • Homework 3

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