Explain growth accounting to a product manager

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Growth accounting is a framework that helps product managers understand the drivers of growth for their product or business. It breaks down the overall growth into different components, allowing you to analyze the quality and sustainability of that growth. Here's how it works:

What is Growth Accounting?

Growth accounting decomposes the overall growth metric (e.g. revenue, monthly active users) into four main components:
  1. New: Growth from newly acquired users/customers in the current period.
  2. Churned: Loss from users/customers who were active in the previous period but not the current one.
  3. Resurrected: Growth from users/customers who had churned previously but became active again in the current period.
  4. Retained: Growth carried over from users/customers who were active in both the previous and current periods.
The key equation is: Growth=New+ResurrectedChurned+Retained\text{Growth}=\text{New}+\text{Resurrected}-\text{Churned}+\text{Retained} By breaking down growth this way, you can better understand the health and sustainability of your growth. For example, high growth driven primarily by new users with high churn is less sustainable than growth driven by retained and resurrected users.

Why It Matters for Product Managers

As a product manager, growth accounting helps you:
  1. Diagnose growth quality: Is growth being driven by short-term tactics that acquire low-value users (high new, high churn)? Or is it from product improvements that increase user value (high retained, high resurrected)?
  2. Identify growth opportunities: High churn may indicate a need to improve activation or long-term retention. High resurrected could mean revisiting re-engagement strategies.
  3. Prioritize initiatives: Analyze which user segments (new, churned, etc.) have the biggest impact on growth to prioritize product improvements accordingly.
  4. Forecast growth: Model out growth projections based on estimated changes to each component from product roadmap initiatives.
  5. Communicate with stakeholders: Explain drivers of growth using standardized, quantitative metrics that resonate across the business.
Growth accounting provides an objective, data-driven way to truly understand your product's growth trajectory and prioritize improvements. Combined with cohort analysis and revenue/engagement concentration, it gives a comprehensive view of product-market fit.
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