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What is a North Star Metric?
A North Star metric is the single most important measure of product success. In other words, it is a leading indicator of whether your product team is successful in achieving its goals or not.
It should be noted that not all success metrics can become North Star metrics. Instead, to qualify as a North Star, a metric should do three things: drive revenue, reflect customer value, and track progress.
Why is a North Star metric important?
- Aligns teams and goals: Like a true North Star, the metric provides the entire company with shared product goals and direction to drive future growth. This alignment fosters collaboration, reduces duplication of efforts, and helps break down silos.
- Helps prioritize efforts: With a clear North Star metric, teams can better prioritize based on what initiatives will have the most significant impact on success.
- Measures sustainable growth: A North Star metric measures sustainable growth by focusing on one key indicator that directly reflects long-term customer value. By doing so, it also promotes consistent progress and encourages customer-centric strategies.
How does a North Star metric framework work?
The North Star metric serves as a central goal for a company, guiding overall strategy and purpose.
However, to make it actionable, it’s typically broken down into smaller, supporting metrics. These sub-metrics allow different teams to actively contribute to the core value represented by the North Star.
For example, a company’s North Star metric may be “monthly active users.” Supporting metrics might include user retention rate, daily logins, and user engagement time. Each team takes ownership of its relevant product KPI, driving improvements that ultimately contribute to the overall North Star metric.
Should a company have only one North Star metric?
Ideally, a company should have only one North Star metric to maintain focus. However, for more complex business models, a single North Star can be limiting, as it may not encompass all growth opportunities available.
This is most commonly seen in companies with multiple core products, each with a separate goal. For example, an e-commerce platform might aim to increase both physical goods and digital services sales. While not contradictory goals, each does serve a different user segment and requires distinct strategies.
Such complexity suggests that certain companies may benefit from using North Star metrics in conjunction with other key performance indicators (KPIs).
Find and Analyze Your North Star Metrics with Userpilot
North Star metrics examples for B2B SaaS
Here are some effective examples of North Star metrics specifically tailored for B2B SaaS businesses. These metrics help highlight the core value of your products or services and guide overall success.
Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) measures the predictable and recurring revenue generated by a subscription-based business on a monthly basis. The MRR growth rate accounts for any variations in active subscriptions because of possible upgrades, downgrades, new paying customers, and churn.
MRR is one of the most important North Star metrics for several reasons:
- Financial health insights: First, it helps businesses understand their financial stability and revenue consistency, making it easier to plan for future growth.
- Customer retention indicator: MRR is a holistic measure of customer retention and satisfaction, with high revenue indicating that customers find value in your product.
- Focused efforts: MRR aligns the entire organization around a common financial goal with clearly defined targets. This enables teams to concentrate on increasing subscriptions, reducing churn, and improving the customer experience.
Customer Lifetime Value
Customer Lifetime Value (CLV) is an estimate of the total revenue a business can expect from a customer over the entire duration of their relationship. It considers factors such as average purchase value and purchase frequency to provide a comprehensive view of a customer’s worth in monetary terms.
CLV makes for a good North Star metric, and here’s why:
- Long-term focus: Encourages businesses to focus on long-term customer relationships rather than just short-term sales. This perspective shift can help companies make informed decisions about marketing, product development, and customer support investments.
- Customer satisfaction indicator: It is a good measure of the effectiveness of your offerings since a higher CLV reflects greater customer loyalty and satisfaction.
- Profitability driver: Understanding CLV helps identify high-value customers and informs targeted marketing and retention strategies. This ultimately increases revenue and profitability over time.
Net Revenue Retention rate
Net Revenue Retention (NRR) rate is a crucial metric for subscription-based businesses that measures the percentage of revenue retained from existing customers over a specific period. It does so by factoring in any upgrades, downgrades, and churn during that period.
Here is why NRR makes for an effective key performance indicator:
- Customer success indicator: NRR is useful for gauging the quality of your customer success initiatives. A high NRR reflects that customers are satisfied with your efforts, which leads to greater renewals and expansions.
- Growth opportunities: An NRR above 100% indicates that revenue growth can come from existing customers, reducing the reliance on acquiring new customers.
Daily active users
Daily Active Users (DAU) refers to the number of unique users who engage with your product or service on a daily basis. Using this metric as your North Star makes sense if you have a tool that customers use daily, like Asana or Slack.
Apart from this, there are many other reasons why Daily Active Users (DAU) is a good North Star metric:
- User stickiness insights: DAU helps you track and understand product traction and user stickiness. For example, a high DAU signifies that users return regularly, indicating your product’s ability to engage and retain users over time.
- Retention issues signs: DAU is typically used with metrics like Monthly Active Users (MAU) for calculating the DAU/MAU ratio, which provides further insights into stickiness. For instance, a low ratio suggests that users sign up but don’t stick around, signaling a serious retention problem.
- Growth trends: Tracking daily active users over time helps uncover any growth trends and periods of increased or decreased user activity.
Retention rate
Retention rate is the percentage of customers who continue to use your product or service over a specific period.
Here are all the reasons retention rate works well as a North Star metric:
- Customer loyalty: Retention rate is a good measure of loyalty. A high retention rate suggests that users find significant value in your product, which is essential for long-term success.
- Cost efficiency: Retaining existing customers is generally more cost-effective than acquiring new ones. For this reason, choosing retention rate as your overarching focus can lead to increased profitability.
- Growth indicator: Tracking retention helps assess the effectiveness of product features and customer support. This serves as a vital indicator of overall business health and growth potential.
Free trial conversion rate
The free trial conversion rate is the percentage of users who transition from a free trial of your product or service to a paid subscription.
This metric is crucial for SaaS companies, so let’s dive deeper into why:
- Product validation: Monitoring this rate helps validate your product’s effectiveness and appeal. A low conversion rate may signal the need for improvements in features or user onboarding.
- User engagement insights: Analyzing conversion data can reveal how well users engage with your product during the trial, helping identify which features drive conversions.
- Retention strategy development: All these insights gained from conversion rates can inform retention strategies, ensuring that users who convert remain engaged and satisfied post-trial.
How to choose the right North Star metric for your business model
To choose the right North Star metric, you should ask yourself five key questions. Let’s go over them quickly and see how Airbnb may find their metric by answering them:
- What is the primary goal of your product? To connect travelers with accommodations and provide a seamless booking experience.
- What customer behavior directly reflects value? Booking accommodations.
- Which single metric can help you track long-term business success? The total number of nights booked, which aligns with Airbnb’s goal of facilitating more stays.
- Can this metric drive both customer value and revenue? Yes, more nights booked means customers are finding value in the platform, and it also directly contributes to revenue growth.
- Is it actionable across teams? Yes, teams from marketing to customer support can contribute to increasing nights booked by improving the user experience or optimizing search results.
You can see how the third question identifies the North Star metric based on the goal and customer value. Once you identify it, make sure it drives both customer value AND revenue and is actionable across teams.
How Userpilot can help you track progress toward your North Star metric
With Userpilot, you can access real-time analytics to monitor user interactions and product usage as they happen. This enables you to see how different user actions impact your North Star metric.
Plus, to make performance tracking even easier, Userpilot allows you to build custom dashboards, too. This way, you can visualize user data and metrics to see progress over time. This ensures a focus on data-driven insights that improve decision-making and enhance user experience.
FAQs
What is the difference between the North Star metric and KPI?
North Star metrics represent your company’s ultimate measure of success and long-term growth focus. In contrast, KPIs are specific metrics that track progress against various goals. A company can have multiple KPIs, but only one North Star metric (typically).
In summary, the North Star metric versus KPIs debate highlights the distinction between shaping long-term vision compared to only measuring specific performance.
What is a famous North Star metric?
Famous North Star metric examples include “active users,” which measures the number of users engaging with your product over a specific period. Active users can be measured across multiple time frames, from daily and weekly to monthly active users.
This metric reflects user retention, satisfaction, and overall product value, making it crucial for driving growth and informing strategic decisions.
What is the North Star metric for Amazon Prime?
The North Star metric (NSM) for Amazon Prime is the “number of purchases per month.” This product metric makes sense for an e-commerce business since it directly measures its core value—selling products to customers.
What is the North Star metric for Airbnb?
Airbnb’s North Star metric is the “number of nights booked.” This success metric effectively reflects the company’s core mission of connecting travelers with accommodations and helping with booking.
Conclusion
One last bit of advice—while the North Star should be your guiding light, don’t focus on it to a fault. Regularly reconsider and (if needed) reframe your North Star metric to ensure it’s relevant, necessary, and aligned with your mission. The last thing you want is to end up chasing the wrong star.
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Find and Analyze Your North Star Metrics with Userpilot
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