5 Easy Steps To Find your “North Star Metric” for SaaS
Do you want to grow your business? You need a strategy that focuses on long-term growth. It’s not enough to simply work hard and hope for the best. Without a well-crafted plan, it’s likely that your company will stagnate.
What is a North Star Metric?
To put it simply, the North Star Metric (NSM) is your most important measure of success for your product. The North Star Metric is a performance management system that measures long-term growth versus short-term growth.
Well-known North Star Metric examples are:
- Spotify : “Time spent listening”
- Airbnb : “Number of nights booked”
- Facebook : “Monthly active users”
The thought behind the North Star Metric is that assuming your company carries more value to your customers, then the growth of your company needs to be positive. The assumption is that if your customers receive get a great deal of value, they will stay longer, purchase more, and allude more companions to your organization.
Thus, your business grows in every respect if your NSM also grows.
Your North Star Metrics is going to be recurring, it’ll help you measure your SaaS company. You might need more than one if:
- You have access to many different user roles in your product.
- You have more than one key value proposition
- When you’re selling more than one product
Now, let’s break down the five easy steps to actually calculating your metric.
Step #1: Identify the “Gating” Factor
It’s essential to ask yourself what type of performance metric is the most important for your business. Ideally, you want to know how your North Star Metric can be measured. This is the primary question that must be answered.
Step #2: Create More Than One NSM
Larger companies may find themselves having several NSM. However, try to keep these metrics to a minimum, not more than three or so. You only need one or two guiding principles.
Often, teams will use metrics that are specific to their needs, depending on what they’re looking to achieve.
Step #3: Know your “AHA” Moments
These moments are crucial for nurturing relationships with your customers. It refers to the conversations you have with customers that lead them to satisfaction and choosing to continue working with you in the future.
Step #4: Find The Common Conversion Activity from Users
Common conversion activities are the activities that define the behavior of accounts that make users keep coming back to your product, or become “sticky,” which have a medium to a high positive impact on retention.
Step #5: Determine your North Star Metric
Once you have a metric, you can identify why it’s important for your business. Then you can determine what to do to grow it. Growth can come from all sorts of places, such as: Acquiring customers Sell more of your product or service Increase revenue Increase your productivity For each of these, you’ll need a strategy. If you aren’t sure what to do, it’s helpful to think of a target number you want to hit. For example, if you want to grow your revenue from $500,000 per year to $1.5 million per year, you’ll need to increase your revenue by 2% each year. From there, you can start finding ways to grow your revenue.
More examples of NSM from large, well-known companies:
To summarize a good North Star Metric has three attributes:
- It Measures the customer value
- It represents product strategy
- Its leading indicator of revenue
Conclusion
Measuring SaaS growth isn’t easy, and finding the right metrics can be challenging. Using our five steps, you can determine your SaaS metrics and where you need to focus.
“You should build a North Star Metric based on your original belief or core value. That’s why he recommends that you first focus on your core values.” — Jeff Bezos
