Product Manager Math Part 1
Over the last few years, I have observed a particular insidious kind of math error occur repeatedly in Product Management circles. Let’s…
Over the last few years, I have observed a particular insidious kind of math error occur repeatedly in Product Management circles. Let’s talk about it for a minute, and I’ll give you a bookmark you can use to help ensure you never make it again.
It happens all the time when measuring change and growth. Here’s an example: If your conversion rate is 4%, and you run an experiment that increases the conversion rate to 5%, what will you report was the impact of your experiment?
If you answered that your experiment increased conversion by 1%, you made a very common error. The correct answer is 25%. 4% to 5% is a 25% change (1 is 25% of 4.) This is a very successful experiment!
If you wanted to talk about the amount of change instead of the percentage of change, you could say “Conversion increased by 1 percentage point” but please don’t.
When you say the word percentage somebody will assume you’re talking about percent change, since that’s how the word is most often used. Say something like “Conversion is up by a point to 5%, that’s a 25% gain.” You can also use basis points which are 100ths of a point. So you could also say “Conversion is up by 500 basis points.”
Here’s the formula for percent change:
( (Value 2 — Value 1) / Value 1 ) * 100 = Percent Change
If conversion went from 5% to 4% it’s going to look like this:
( (4–5) / 4 ) * 100 = Percent Change
( ( -1 ) / 4) * 100 = Percent Change
( ( -.25) * 100 ) = -25%
So here the change from 5% to 4% represents a -25% (that’s negative!) change. You should probably stop the experiment.
If you don’t feel like memorizing the formula, here’s a handy calculator:
I hope that’s helpful. Use it in good health!