The universal formula for the success of a product and digital business

To create successful digital products, you need to understand them well, as well as the market (your customers). Let's start from a base that is intermediate between the product and the consumers.

This text is aimed at digital creators, individual entrepreneurs, digital marketers, and junior product managers.

Let's go!

For digital projects, we apply unit economics, a method of economic modeling that helps determine the profitability of a business by calculating the profitability of a business unit (a unit of product or a customer).

The basic rule of unit economics is that it should be cheaper to attract a user than the amount of money that user generates by using the product.

Of course, not all businesses are that simple. A company may have many products, and some of them may not be profitable, but they still help directly or indirectly to sell the main products. The basis of unit economics is a backbone that can help you in your calculations.

Our formula is that the product must solve not only the user's problem but also the company's, meaning the product must bring in profits.

CAC < LTV

CAC (Customer Acquisition Cost) is the cost of attracting a new user.

LTV (Lifetime Value) is the amount that the user contributes to the company over time. It’s great that digital allows us to track this over time, unlike offline businesses.

DIRK Framework

For this reason, the DIRK framework was developed to facilitate decision-making when developing a product or making changes to it.

D (decrease) - if it decreases the CAC.

I (increase) - if it increases the LTV.

R (repeatable) - if it is repeatable.

K (key prediction) - order of changes.

When making decisions, try to pass them through the four questions.

1 — Does your solution reduce the cost of attracting a new paying user to the product?

Example: Introducing a feature to invite your friends often helps reduce the cost of attracting a single customer.

2 — Will your decision impact increasing the amount of money the company earns from the customer?

Example: Introducing a subscription feature, extending the period paid by the customer, often increases LTV.

3 — Is it profitable to repeat the decision?

Example: Features like subscriptions and inviting friends are more or less clear and can probably be implemented permanently. However, a successful promotion with a 30% discount for returning customers might not be profitable to use continuously. People might cancel the subscription deliberately to get it again with a 30% discount. Therefore, you should consider offering discounts for Black Friday or holidays.

4 — Define the order of change

Example: If several change hypotheses have passed through the decision filter, the first three parts of the DIRK framework, then in step 4, you have to develop a hypothesis that determines how to apply these changes: increasing profits and reducing costs.

Conclusion

There are many frameworks, and many companies are developing and testing theirs. This is one of them. If you are at the beginning of your journey, you can use it completely because it may fascinate you with its simplicity. Or maybe it's just the beginning or the inspiration to create your own for your particular business. In any case, all these tools are produced so that you know your business and the product you are working on better. Over time, your understanding becomes deeper, so you can generate the perfect tools for you.

In the meantime, here it goes.

And excuse the mistakes in Spanish, I'm working on it.

If there is something to discuss, leave your comments.