If you’re unsure where to focus for the biggest impact on your business, a North Star Metric can help. In this article, we’re going to take a look at how to define the North Star Metric for your SaaS.
What is a North Star Metric?
A North Star Metric (NSM) is a single key performance indicator (KPI) that a company uses to measure its progress towards achieving its long-term goals. For a SaaS (Software as a Service) company, the NSM is especially important as it helps to define the company’s primary goal, which in turn guides all other strategic and tactical decisions. Here are some ways in which a North Star Metric can help a SaaS company:
- Focus on what matters most
With so many metrics available to track, it can be challenging to determine which metrics are the most important to track. By defining an NSM, a SaaS company can ensure that everyone is aligned towards the same primary goal. This allows teams to focus on the metrics that matter most in achieving that goal, which in turn leads to better decision-making.
- Align teams around a common goal
When everyone in a SaaS company is focused on the same NSM, it creates alignment around a common goal. This alignment allows teams to work more efficiently and effectively, as everyone is working towards the same goal. The NSM also provides a shared language that helps to facilitate communication and collaboration across teams.
- Measure success over the long-term
The NSM helps to provide a long-term perspective on success. It defines the primary goal of the company, and success is measured based on progress towards that goal. By focusing on the NSM, a SaaS company can ensure that it is building a sustainable business that will continue to grow and succeed over the long-term.
- Drive growth and profitability
The NSM can help a SaaS company to drive growth and profitability. By focusing on the key metric that drives the business, the company can make strategic decisions that will help to increase revenue and profits. This can include things like optimizing the sales funnel, increasing customer retention, or improving product features that are most closely tied to the NSM.
- Identify areas for improvement
The NSM can also help a SaaS company to identify areas for improvement. By measuring progress towards the NSM, the company can identify areas where it is falling short and take action to improve. For example, if the NSM is monthly recurring revenue (MRR), and the company is not seeing the expected growth in MRR, it may need to focus on improving its customer acquisition strategy or increasing customer retention.
- Align product development with customer needs
The NSM can also help a SaaS company to align product development with customer needs. By understanding the key metric that drives the business, the company can prioritize product features and improvements that are most closely tied to the NSM. This ensures that the company is building products that will help to drive growth and profitability over the long-term.
In conclusion, a North Star Metric can be an invaluable tool for a SaaS company. It helps to provide focus, alignment, and a long-term perspective on success. By defining an NSM and measuring progress towards it, a SaaS company can drive growth, profitability, and customer satisfaction, while also identifying areas for improvement and aligning product development with customer needs.
Examples of North Star Metrics
Intercom – Number of customer interactions
If Intercom is driving conversations between its users and their end customers, it’s delivering value!
Hubspot – Number of weekly active teams
With a CRM like HubSpot, team engagement is critical to success. Measuring on a weekly basis ensures that they’re measuring customers who have adopted the product.
Docusign – Number of signed envelopes
Fairly straightforward for a transactional metric.
Zoom – Weekly hosted meetings
Again, this one is great because it focuses on measuring teams that are demonstrating adoption, filtering out one-off or infrequent users.
How to establish your North Star Metric
Establishing a North Star Metric (NSM) is a critical step for any SaaS (Software as a Service) company to achieve long-term success. Here are some steps a SaaS company can follow to establish their NSM:
- Define the company’s long-term goals
Before defining the NSM, the company needs to establish its long-term goals. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART). For example, the company may have a long-term goal of becoming the market leader in a specific niche or achieving a certain level of revenue or profitability.
- Identify the key driver of the business
Once the long-term goals have been established, the company needs to identify the key driver of the business. This is the metric that has the most significant impact on the company’s success in achieving its long-term goals. This metric is often related to revenue or user growth, but it could also be related to customer engagement or retention. The key is to identify the metric that is most closely tied to the company’s long-term success.
- Validate the key driver with data
After identifying the key driver of the business, the company needs to validate it with data. This involves analyzing historical data to determine if the key driver has a strong correlation with the company’s long-term success. The company may also need to gather additional data through customer surveys or other market research to validate the key driver.
- Define the North Star Metric
Once the key driver has been validated, the company can define its NSM. This is a single metric that the company will use to measure its progress towards achieving its long-term goals. The NSM should be simple, easy to understand, and closely tied to the key driver of the business.
- Communicate the NSM throughout the organization
Once the NSM has been defined, the company needs to communicate it throughout the organization. This ensures that everyone is aligned around the same primary goal and understands how their work contributes to the company’s long-term success. The NSM should be prominently displayed and regularly discussed in meetings and other communication channels.
- Use the NSM to guide decision-making
Finally, the company needs to use the NSM to guide decision-making. This involves regularly tracking progress towards the NSM and using it to make strategic and tactical decisions. For example, if the NSM is monthly recurring revenue (MRR), the company may need to focus on optimizing the sales funnel or increasing customer retention to drive MRR growth.
In conclusion, establishing a North Star Metric is critical for any SaaS company to achieve long-term success. By defining the NSM, the company can focus on what matters most, align teams around a common goal, measure success over the long-term, drive growth and profitability, identify areas for improvement, and align product development with customer needs. By following the steps outlined above, a SaaS company can establish its NSM and use it to guide decision-making throughout the organization.
For example, at UserActive, we might have Software Interfaces Designed as our North Star. Metrics that feed into that are:
- Strategy Sessions Delivered
- Workshops Delivered
- Wireframes produced
- Number of Design Sprints Completed
Need a hand?
To wrap up, if you need any help with UX/UI design for your software just reach out to us on our Work With Us page to answer a few questions to make sure we’re a good fit for what you need. That way, you can book a free 15-minute, no-obligation consult with us. If you’re confident we’re a good fit for you, book now right here. We design interfaces that are aligned with business objectives in order to drive growth.