Module 8

Analytics & Decision-Making

๐Ÿ“– 2 Lessonsโฑ 60-90 min ๐Ÿงช Lab: Funnel Analysis & Experiment Designโœ… Quiz: 6 questions

Learning Objectives

Lesson 8.1
Core Product Metrics
CategoryKey MetricsFlowScale Example
AcquisitionCAC, conversion rateSignup to activated conversion
ActivationTime-to-value, completion rateOnboarding completion, time to first workflow
RetentionDAU/MAU, churn, cohort retention30-day retention by cohort
RevenueARPU, LTV, expansion revenueSeat expansion rate
SupportTicket volume, resolution timeOnboarding ticket reduction
Lesson 8.2
Correlation vs Causation
๐Ÿ”ด
The most dangerous analytics mistake: confusing correlation with causation.

"Users who create a workflow in 24h have 3x retention" โ€” this is a correlation. It does NOT mean that forcing workflow creation in 24h will cause 3x retention. The causation might run the other way: engaged users both create workflows early AND retain. To prove causation, you need an experiment.

The Experiment Hypothesis Format

Standard Format

If we [change], then [metric] will [improve by amount] because [reasoning].

Example: If we simplify the data source connection step to require only a URL instead of an API key, then step 3 completion will increase from 41% to 55% because the primary barrier (technical knowledge of API keys) is removed.

Common Confounding Variables

A confounding variable is a third factor that explains both the cause and effect you observe. Examples:

Lab 8

Funnel Analysis and Experiment Design

Scenario: FlowScale's onboarding funnel shows a major drop at step 3. You need to analyze the drop-off and propose experiments to address it.
Step 1

Create prompts/funnel-analysis.md. The prompt must ask the AI to: identify the highest-leverage improvement opportunity, calculate impact of improving step 3 from 41% to 60% on overall activation, propose 3 experiments each with a full hypothesis (If/then/because), expected lift, effort to run, success measurement, and one possible confounding variable per experiment. Quality rule: clearly distinguish what the data shows from what is inferred; mark all inferences as [INFERENCE โ€” needs experimental validation].

Step 2 and 3

Run the analysis. Then conduct a causation audit for every claim:

  • Is this a correlation or a claimed causation?
  • If causation is claimed, is an experiment proposed to validate it?
  • What confounders did the AI identify? What did it miss?
Step 4

Write an experiment brief at deliverables/W08-experiment-brief.md for your top-recommended experiment. Include: hypothesis, success metric with baseline, experiment duration, minimum sample size rationale, and rollback criteria.

Deliverables

  • Funnel analysis prompt
  • Raw AI output
  • Causation audit (all claims categorized)
  • Experiment brief for top recommendation

How to Verify Completion

  • Your causation audit explicitly labels each AI claim as Correlation, Causal Claim, or Inference
  • At least one confounding variable identified per experiment that the AI missed
  • Your experiment brief hypothesis follows the If/then/because format with specific numbers
  • Your experiment brief includes minimum sample size โ€” not just "run for 2 weeks"
Done when: Your experiment brief could be handed to a data analyst tomorrow and they would know exactly what to measure, for how long, and what threshold constitutes success or failure.
Quiz

Module 8 โ€” Knowledge Check

0 / 6 answered
Question 1 of 6
FlowScale data shows: "Users who create a workflow within 24h have 3x higher 30-day retention." This is best described as:
A Causal evidence โ€” creating workflows early causes better retention
B A correlation that cannot be used to justify forcing workflow creation without experimental validation
C Behavioral data that automatically qualifies as strong evidence
D Insufficient data to draw any conclusion
Correct. This is a correlation. The causation might run in the opposite direction: highly engaged users are both more likely to create workflows early AND more likely to retain. Designing a feature to force early workflow creation based on this correlation alone could be ineffective or even harmful.
Question 2 of 6
What is the correct experiment hypothesis format?
A "We believe that improving step 3 will increase retention."
B "Step 3 drop-off is caused by technical knowledge gaps."
C "If we simplify data source connection to require only a URL, then step 3 completion will increase from 41% to 55% because the primary barrier (API key knowledge) is removed."
D "We will test whether a simplified connection step improves activation."
Correct. A good hypothesis is falsifiable: If X, then Y will change by Z because of mechanism M. The mechanism is important โ€” it tells you why you expect the change, which helps you diagnose when the hypothesis is wrong.
Question 3 of 6
A confounding variable in the 24h workflow creation / retention correlation could be:
A The time of day users sign up
B Whether users have a company email
C The country the user is in
D User engagement level: highly engaged users are both more likely to create workflows early and more likely to retain โ€” engagement is the real driver
Correct. Engagement level is the classic confounding variable here. If you design a feature to force workflow creation early for low-engagement users, you are treating a symptom (late workflow creation) rather than the root cause (low engagement). The experiment may show no retention lift.
Question 4 of 6
What is the "time to value" activation metric measuring for FlowScale?
A Time from signup to first payment
B Time from first login to customer success check-in
C Minutes from signup to first workflow creation โ€” the moment a user experiences the product's core value
D Time from sales contract signing to onboarding completion
Correct. Time to value measures how quickly users reach the "aha moment" โ€” the first time they experience the product's core promise. For FlowScale, that is creating a working workflow. Current baseline is 47 minutes; target is 15 minutes.
Question 5 of 6
The AI analysis says: "Step 3 drop-off causes lower retention." What is the correct response?
A Accept it โ€” step 3 clearly causes problems
B Flag it as a causal claim from observational data โ€” mark as [INFERENCE] and require an experiment to validate causation before committing engineering resources to fix it
C Dismiss it โ€” AI cannot analyse funnels reliably
D Ask the AI to re-run the analysis with more data
Correct. From observational data alone, you can say "step 3 drop-off correlates with lower retention." Causation requires an experiment. Marking this as [INFERENCE] keeps the team honest about the evidence level and prevents over-investing in a fix for something that might not actually drive retention.
Question 6 of 6
Why must an experiment brief specify minimum sample size, not just a run duration?
A Because experiment duration is irrelevant to validity
B Because sample size is required by GDPR for A/B tests
C Because AI tools cannot calculate experiment duration
D Because statistical significance depends on sample size, not time โ€” "2 weeks" might be 100 users or 10,000, producing completely different confidence levels
Correct. A 2-week experiment with 100 users gives you almost no statistical power. A 2-week experiment with 5,000 users gives you high confidence. Power calculations determine the minimum sample size needed to detect the effect size you care about. Duration is a derived constraint, not the primary one.
Module 8 Score