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Understanding the Product Development Lifecycle

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July 24, 2023
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The product development lifecycle – the journey from the seed of an idea to its fruition as a market-ready product – is complex, multi-faceted, and occasionally unpredictable. Yet, it's a journey that every start-up founder and business leader must undertake. This comprehensive guide aims to elucidate this process, providing a deep dive into each phase and offering best practices to ensure a swift, high-quality launch while maximising your return on investment.

Ideation and Conceptualisation

Everything begins with an idea. This phase serves as the cradle for potential product concepts. Ideas may arise from various sources – a solution to an existing problem, a gap in the market, or a vision for something entirely new.

This stage is about nurturing a culture of innovation. It's about creating an environment where ideas are shared, discussed, and critically evaluated. This ideation process often involves brainstorming sessions, concept evaluation, and feasibility studies to validate the idea's potential. Moreover, understanding your target audience, their needs, and behaviours through in-depth market research is paramount.

Product Design and Prototyping

Once you have a validated concept, it's time to transform that abstract idea into a tangible design. This stage is a blend of art and science, involving both creative and analytical skills.

The design phase encompasses creating user personas, defining user journeys, building wireframes, and fleshing out the user interface (UI) and user experience (UX) designs. The goal here is to envision how the user will interact with the product and create a seamless and intuitive user experience.

Building a prototype – a preliminary model of the product – can bring the design to life. Prototypes can range from simple paper sketches to interactive digital models. Usability testing with these prototypes can offer valuable insights and early feedback, providing an opportunity to rectify design issues before diving into full-scale development.

MVP Development and Launch

In the race to bring your product to market, launching with a Minimum Viable Product (MVP) is a game-changing strategy. An MVP is a stripped-down version of the product, embodying just enough features to satisfy early adopters and capture initial market feedback.

The advantage of this approach lies in its focus on swift market entry, allowing for real-time learning and validation. Instead of spending substantial time and resources on building a feature-rich product, you can test the waters with your MVP and gain vital market feedback early on.

Iterations and Enhancements

Once your MVP is live and gathering user feedback, the iterative development cycle begins. This is the phase of learning, refining, and growing.

User feedback is invaluable in this stage. Understanding your users’ experiences and learning from their behaviour allows you to refine the product and its features. The goal is to constantly iterate on the product based on data-driven insights, adapting and evolving it to meet the changing needs of your target audience.

Growth and Scaling

With a refined product that has achieved a product-market fit, the focus shifts to growth and scaling. This phase involves increasing user acquisition, optimising performance, scaling infrastructure, and expanding features to enhance the product's value proposition.

The scaling process should also take into account potential market changes and user needs. Regularly revisiting your user personas and market trends is crucial to maintaining a competitive and innovative product.

Post-Launch Support and Maintenance

The product development lifecycle doesn't end at launch. In fact, maintaining and updating the product is an ongoing task that ensures the product remains reliable, secure, and relevant to its users.

This phase involves regular software updates, fixing bugs, improving performance, and potentially introducing new features based on user feedback and changing market trends. It's about preserving the value of the product and sustaining its growth.


Understanding and effectively managing the product development lifecycle is a cornerstone for a successful product launch. At Thought&Function, we specialise in guiding non-technical founders and business leaders through this complex yet rewarding journey. We prioritise swift launches, rapid iterations, maximising ROI, and uncompromising quality, ensuring your product is engineered to solve real problems and generate substantial value.

Remember, your product's journey, from its conception to its final form, is a carefully orchestrated symphony of processes. With the right knowledge, strategies, and partners, you can expertly navigate this journey, turning your visionary ideas into impactful reality.

1 - Prioritise new features / Address User Drop-Off

When you're running a SaaS company, deciding which features to roll out next can make or break your product's appeal. Additionally, understanding why users leave your SaaS platform can be as important as attracting them in the first place. By keeping an eye on KPIs like Churn Rate and Engagement Rate, you gain invaluable insights into what keeps users satisfied and what might be pushing them away. Let's look into some crucial KPIs which can guide you in making well-informed decisions about your next big feature update:

1. Feature Conversion Funnel:

This KPI measures how effectively users move from initial engagement to full use of a feature. It helps SaaS companies identify where users drop off, guiding improvements to enhance feature adoption and prioritising development efforts.

You can use the following formula to calculate this KPI:

Formula for calculating the conversion rate from Stage A to Stage B, defined as the number of users moving from Stage A to Stage B divided by the total users as Stage A.

2. User Engagement Rate:

For SaaS companies, engagement rate measures how actively users are interacting with the application. High engagement rates are often indicative of a valuable and sticky product, reducing the likelihood of user drop-off.

The calculation for this KPI can be done using this formula:

Formula for calculating user retention of a feature, based on the ratio of users still engaged with the feature after a specific period.

3. Customer Satisfaction:

This KPI measures how satisfied customers are with a product or feature, typically through surveys. High satisfaction rates correlate with lower churn and higher loyalty, making it essential for evaluating user experience and identifying areas for improvement in SaaS offerings.

The calculation for this KPI can be done using this formula:

Calculation of Net Promoter Score, subtracting the percentage of detractors from the percentage of promoters among surveyed customers.

2 - Accelerate User Growth

Growing a user base is one of the most exciting challenges in the SaaS world. It's not just about bringing in new sign-ups but ensuring they stick around and find real value in your product. We'll delve into effective SaaS KPIs like Monthly Active Users and the Growth Rate of New Signups that can help you craft strategies to not only attract more users but also engage them deeply:

1. Customer Acquisition Cost (CAC)

The CAC is a crucial KPI for SaaS companies, as it quantifies the cost involved in acquiring new customers. Understanding this metric is essential for evaluating the effectiveness of your marketing strategies and ensuring sustainable growth by maintaining a balance between expenditure and incoming revenue.

To find this KPI, use this formula:

Calculation of Customer Acquisition Cost, total marketing expenses divided by the number of new customers acquired.

2. Growth Rate of New Signups

This KPI tracks the percentage increase in user signups over a given period. It's particularly useful for SaaS businesses to monitor momentum in market penetration and user interest, helping to direct marketing efforts and product development.

This formula is used to calculate the KPI:

Calculation of Customer Acquisition Cost, total marketing expenses divided by the number of new customers acquired.

3. Monthly Active Users (MAU)

In the SaaS world, the MAU KPI measures the number of unique users who interact with your software within a month. This metric is vital as it indicates the active reach of your product and helps gauge the overall stickiness and appeal of your platform.

The following formula can be used to calculate this KPI:

Formula showing how to calculate Monthly Active Users, counting unique users engaging with the service within a month.

3 - Provide Product Metrics to Investors

Communicating effectively with investors is crucial for any SaaS business. Clear and precise metrics like Monthly Recurring Revenue (MRR) and Churn Rate not only showcase the financial health of your company but also reassure investors about the scalability and stability of your business model. Let's walk through the vital KPIs that paint a transparent picture of your SaaS company's performance for its stakeholders:

1. Monthly Recurring Revenue (MRR)

MRR is a key financial metric for any SaaS business, reflecting the total predictable revenue generated from customers every month. It's essential for investors as it provides a clear picture of the company’s financial health and growth potential.

Here’s the formula to calculate this KPI:

Formula for Monthly Recurring Revenue, summing up all recurring revenue generated by customers each month.

2. Churn Rate

Churn rate is an indispensable KPI for SaaS companies, indicating the percentage of customers who discontinue their subscriptions within a specific period. A lower churn rate suggests a higher customer satisfaction and product-market fit, which is critical for long-term success.

This is the formula for calculating the KPI:

Formula for calculating churn rate, represented as the percentage of customers lost over a specific time frame.

3. Lifetime Value (LTV)

LTV measures the total revenue a SaaS company can expect from a single customer throughout their relationship. This KPI is crucial for understanding how much a company should invest in acquiring customers and for determining the profitability of long-term business strategies.

Use this formula to find the KPI:

Equation for calculating customer lifetime value, which estimates the total revenue a business can expect from a single customer.

4 - Optimise Revenue Generation / Monetisation

Turning your SaaS platform into a robust revenue-generating machine requires more than just great software; it needs a smart monetisation strategy. By focusing on KPIs like Average Revenue Per User (ARPU) and Conversion Rates from Free to Paid, you can really dial in on what makes your users upgrade and how to boost your overall profitability. Let’s break down these KPIs and explore how you can use them to fine-tune your monetisation efforts for maximum impact:

1. Average Revenue Per User (ARPU)

ARPU is a critical financial KPI for SaaS businesses, measuring the revenue generated per user. It helps in assessing the revenue impact of different operational strategies and in fine-tuning pricing models.

Here's the formula you need to calculate this KPI:

Formula to calculate Average Revenue Per User, total revenue divided by the number of users.

2. Conversion Rate from Free to Paid

This metric tracks the percentage of users converting from free trial versions to paid subscriptions. For SaaS companies, a higher conversion rate indicates effective monetisation strategies and a compelling value proposition.

The following formula can be used to calculate this KPI:

Graph showing the conversion rate from free to paid users, calculated as the ratio of users who upgrade to a paid version.

3. Revenue Growth Rate

The revenue growth rate is an essential KPI for SaaS businesses, showcasing the rate at which the company's revenue is expanding. This KPI is vital for investors and stakeholders to assess the overall business growth and scaling capacity.

You can find this KPI using this formula:

Formula for calculating revenue growth rate, expressed as the percentage increase in revenue from one period to the next.

5 - Improve Business Resource Allocation and Strategy

Ensuring sustainable business growth and operational efficiency is paramount for any SaaS business. Key performance indicators (KPIs), such as the LTV:CAC ratio, provide a clear picture into the returns generated and optimal resource distribution. Let's dive into the KPIs that will help you strategically allocate resources, adjust marketing strategies, and effectively balance customer acquisition with retention:

1. Customer Lifetime Value to Customer Acquisition Cost Ratio (LTV:CAC)

The LTV:CAC ratio is a vital KPI in the SaaS industry, providing insight into the relationship between the lifetime value of a customer and the cost to acquire them. A healthy ratio indicates that a company is spending efficiently on customer acquisition while maximising revenue from each customer. The bigger the multiple, the more budget you can put into growing a team and customer growth.

To find the KPI, apply the following formula:

Formula showing the ratio of Lifetime Value (LTV) to Customer Acquisition Cost (CAC), a key indicator of the profitability of acquiring new customers.

2. Customer Acquisition Cost Payback Period

The Customer Acquisition Cost (CAC) Payback Period is a critical metric for SaaS businesses. It measures how long it takes to recover the costs of acquiring new customers, helping companies evaluate the efficiency of their marketing and sales efforts. A shorter payback period means a quicker return on investment, guiding better financial and strategic decisions.

This formula will help you calculate the KPI:

Formula to determine the payback period for customer acquisition costs, calculated by dividing CAC by monthly profits from a customer.

3. Market Penetration Rate

The Market Penetration Rate is essential for understanding a SaaS company's market impact. It measures the percentage of the total addressable market that the company has captured. This metric helps assess competitive position and growth opportunities, indicating how well the product is adopted in the market.

Use this method to calculate the KPI:

Formula for market penetration rate, shown as the percentage of potential customers in a market who are actual customers.

In wrapping up, it's clear that understanding and using KPIs effectively is vital for any SaaS business that wants to grow and thrive. By focusing on key metrics like Customer Acquisition Cost (CAC), Annual Recurring Revenue (ARR), and Lifetime Value (LTV), you can get a clear picture of how your business is doing and where you need to go. These KPIs aren't just numbers—they're powerful tools that help you and your team make smart decisions and reach your goals. By tracking the top three KPIs for each of your business objectives, you'll keep your SaaS company agile, competitive, and on the right track for growth.

Next Steps

If you're curious about how we apply these principles in real-world scenarios, we invite you to explore our projects. Visit Thought and Function Projects to see how we put theory into action and drive success in SaaS through strategic use of KPIs.