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Finding Your North Star Metric (Examples from the Best SaaS Companies) - YouTube
Channel: Dan Martell
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- Hey there, I'm Dan Martell.
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Serial entrepreneur, investor,
and creator of SaaS Academy.
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In this episode, I'm gonna teach you
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how to find your North Star Metric.
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I'm gonna deconstruct it, explain it,
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share some of the top SaaS companies,
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examples and help you figure it out
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be sure to stay to the end
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where I'm gonna share with
you an exclusive resource
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called the Precision Scorecard.
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So what you do is you take
your North Star Metric
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and you stick it into
Precision Scorecard Playbook,
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to hold your whole team accountable,
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to moving it up into the right,
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Let's get it.
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(drum beats playing)
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So I first learned this strategy
from my buddy, Sean Ellis.
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Sean is the creator of
the term GrowthHackers,
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and created the concept
of The North Star Metric.
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He made it popular through a framework,
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he teaches called the High Tempo Testing.
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Now, why do I think it's so powerful,
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when I was building my company, Clarity,
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the team and I, we had raised
1.6 million in funding.
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We were struggling to find a rhythm,
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from a product development point of view,
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from a monetization point of view,
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from a growth point of view.
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And I remember calling
Sean, I was down in LA,
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about to go on "This Week In
Startups" with Jason Calacanis,
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if you haven't seen,
that's a very old episode.
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But was about to go on to talk about
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our previous acquisition Flowtown,
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I remember I was standing
in the parking lot,
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Renee was there, my
wife fiance at the time,
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and I was talking to Sean and I was like,
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"dude, I'm trying to figure out,
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like, what do we focus on?
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We're building a marketplace..."
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If you've ever done a
marketplace, It's crazy.
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It's like having twins at the same time.
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And, he explained to me,
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he says, "dude, you need to figure out
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what your North Star Metric is.
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You need to figure out
the metric that you know,
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that if you move up and make better,
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that your customers are getting value
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and the businesses is getting value."
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So I went back to the team,
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sat down, did a strategy planning session,
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whiteboarded a bunch of different options,
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and for us we came up
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with a metric called EDS
Expert-Driven Sign-ups.
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Why?
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Why did we go through that framework?
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Here's the deal.
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We knew we need to drive
growth in sign-ups,
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but we couldn't do it
through paid acquisition
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because of the percentage we were taking
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in the marketplace, didn't
support paid channels.
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So, what we decided is
to try to figure out
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strategies that would get the experts
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when they signed up, to
promote their own profile,
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no different than Airbnb would do
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for like people that had listings.
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And we literally just
focus on that number.
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And every week, every two weeks sprint
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we just get better at it
and better at it and better,
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and then that's when the
flywheel started to take off,
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and the amount of experiments
that we went through
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was crazy but the part that made it easy
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is that we had that
one metric to focus on.
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So I want to share with you
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kind of like four areas to look at,
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to figure out your
North Star Metric today.
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So number one, what's the
Definition of a North Star Metric?
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Here's the way I think about it.
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It is a number that tells you
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that not only your
customers are getting value,
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but the business is getting value.
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And it is usually a leading indicator
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to kind of revenue growth.
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So it's some kind of activity
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that's happening in your
product, that's specific to you,
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that tells you that the
customers are getting value
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and you should derive value
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through the form of revenue,
if it's working out.
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Okay, so that's the definition
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for me of a North Star Metric.
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Number two, Focus on the game.
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So there's three games.
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And when I say games, it's kind of like
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every business has a different
game they're playing.
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They're either playing one of these three,
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they're playing an intention game.
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So this would be like a Facebook
or Netflix or attention.
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They're a transactional game.
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So this is like an Amazon
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or some kind of e-commerce
company like Shopify,
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on the transaction side,
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Shopify is probably not the best idea,
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but you get the picture.
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So it's kind of like
transactional commerce.
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And then third would be on productivity.
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The productivity game is most software
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as a service company, SaaS company.
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So this is like Trello,
Asana, Salesforce, et cetera.
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You get the picture, Slack, Dropbox,
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anything that is around productivity.
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First, you need to figure out
what game you're playing in.
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So if you're watching
this, you're a software
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as a service company, a SaaS company,
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you are focused on productivity.
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Number three, Examples.
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I wanna share a few examples
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to get you thinking
through how this works.
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So number one, Airbnb.
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Their North Star Metric is nights booked.
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Why?
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Because as a marketplace,
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and that's why I focus
on Expert-Driven Signups.
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If people are booking nights at Airbnb,
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their host and the people
searching for places to stay
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are meeting each other.
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So that means if that
number's nights booked
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every night goes up,
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it means that the supply is available
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and the people are finding that supply.
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Facebook, daily active users.
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Okay.
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So on a daily basis,
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what percent of their
customer base were active.
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So if they add a new feature,
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it's all about increasing the activation,
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and getting them back
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or getting them more engaged, et cetera.
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So daily active users for Facebook
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'cause they monetize through ads.
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The other one would be Kora.
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Kora is the number of
questions answered by users.
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So the number of questions, users answer.
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So that is their North Star Metric.
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Slate, which is a content site,
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is total number of engaged
time or total engaged time.
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That tells them that people are consuming
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and they can monetize through ads.
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Salesforce, average record
created per account.
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They wanna make sure that
people are using the product,
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so creating a record in the system
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from the accounts they have.
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So what percent of the...
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Or how many records are
being created per account.
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And Adobe, which sells Cloud software,
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they would just do the number
of engaged cloud subscription.
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So how many people are active
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or engage as a subscription owner.
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And that's like at a high level
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really easy for you to figure out.
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It's what's the thing that you know
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your successful customers are
achieving within your product,
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and you wanna look at it
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as a percent of your
instal base typically,
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so that you can figure out
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if that number's going up into the right.
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And that's why it's a North Star Metric.
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It is that focus of everybody
being able to move it forward.
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That's another aspect
of North Star Metric,
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is can everybody in the
company influence that number?
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If the answer is yes, it's a good one.
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But let's dive into the
formula specifically.
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Number four, The Formula.
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So the formula for the North
Star Metric is a few things.
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Number one is, is your
customer getting value?
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If I measure this,
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does it tell me that my
customer is getting value.
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So that's the first place
I would start to look.
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Within that, I wanna know
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that it's a leading indicator to revenue.
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So if I measure this, are
people that do this behaviour,
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this data point I'm going to measure,
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will it lead to revenue?
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And number three,
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is it specific to my business?
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That's why it requires
some level of creativity,
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to customise your North Star Metric.
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'cause you can't just
swipe somebody else's,
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'cause it doesn't give the full picture
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of your specific product.
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So those are the three
things I would ask you.
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Is it something that measures value
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that your customers getting it?
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Is it a leading indicator to revenue?
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And is it specific to your product?
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So ratios, metrics, et cetera,
are great North Star Metrics.
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For example, give you a great
example from my friend, Evan,
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who works in ahhhh
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he leads the service and parts department
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at the local Volkswagen dealership.
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And one of their North Star Metrics
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is called the absorption rate.
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And absorption rate
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is the percent of overhead
covered by parts and services.
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Meaning that if they have
a $10 million overhead,
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to run their Volkswagen dealership,
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what percent is it a 100%, 80%, 110%?
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Of the revenue from service and parts
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alone covers the overhead of the building.
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That's just their North Star Metrics.
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So everybody focuses on ensuring that
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that is at least a hundred percent,
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hundred and twenty is
like really good I guess.
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But that is an example of
something very specific
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to their industry that they can measure.
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So you're gonna need to
figure it out for yourself.
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So quick recap, four things.
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Number one, the definition
of North Star Metric.
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Number two, the Games focus on
the game that you're playing.
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Number three, Examples
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and number four, Formula.
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As I mentioned the
beginning of this episode,
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I wanna share with you
an exclusive resource
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called the Precision Scorecard.
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It's the framework I use to
grow all of my companies,
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to keep everybody focused,
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measure the weekly activity
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to the monthly, to the
quarterly, to the annual,
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to make sure that we hit our goals,
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no excuses, red, green, or yellow.
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It's a very simple framework
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you can click the link to download
[515]
not only the five strategies
that implement it,
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but I even give you the template,
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so that you can literally look at
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the six core functions
of a software company,
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and implement the Precision
Scorecard for your business.
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So click the link below to grab your copy.
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And if you liked this video,
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be sure to smash the subscribe button,
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like the video, and if there's
anybody that you care about,
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you think it could serve,
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feel free to share it with them directly.
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And as per usual, I wanna challenge you,
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live a bigger life and a bigger business,
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and I'll see you next Monday.
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♪ What's up with my audio
testing, sweet sweetness. ♪
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