North Star Metric (NSM)

North Star Metric (NSM)

What is a North Star Metric?

Whether you’re running a marketing business (like us) or a B2B SaaS company (like our customers), identifying a North Star Metric (NSM) can have a huge impact on overall strategic alignment and business success.

A North Star Metric is a singular metric chosen by a company to direct its focus and guide its activities towards long-term growth and success. 

 

 

By defining an NSM that strongly correlates with positive business outcomes, and getting the whole organization focused and aligned on increasing that metric, organizations can elevate their performance, delight their customers, and consistently achieve their growth targets.

A well-chosen North Star Metric should correlate strongly with the value an organization delivers to its customers, as well as the overall success of the business. 

What are Metrics?

Metrics are measurements used by businesses and other organizations to monitor, track, and evaluate the success of individual employees, processes, campaigns, departments, or the business as a whole.

For B2B SaaS marketing teams, popular metrics used to assess the impact of a specific campaign might include things like:

 

  • Number of MQLs or leads generated
  • Number of SQLs or sales opportunities generated
  • Number of views or clicks generated with a specific ad campaign
  • Conversion rates for key landing pages
  • SEO metrics, such as volume of web traffic generated or number of keywords ranking

 

And while marketing teams use campaign metrics to measure their success, SaaS executives are often focused on a completely different set of metrics, including ones like:

 

  • Monthly Recurring Revenue (MRR/ARR)
  • Customer Acquisition Cost (CAC)
  • Customer Lifetime Value (CLV/LTV)
  • Average Monthly Churn
  • Pipeline Velocity
  • Average Sale Cycle Length

 

Any of the metrics listed above could be chosen as a North Star Metric under the right circumstances. 

Organizations today also have unprecedented access to all types of customer, sales, marketing, engagement, and product usage data, making it possible to develop more complex North Star Metrics that correlate strongly with customer value creation and business success. 

Why is a North Star Metric Important?

Measuring Success and Maintaining Accountability

Just like other metrics, a North Star Metric is a way of measuring the success of your business. Defining an NSM gives your organization the ability to hold individuals and teams accountable for their overall alignment with organizational strategy and efforts to improve that North Star Metric.

 

Simplifying Perspectives on Customer Value

A well-defined North Star Metric should provide a simplified perspective on the real value that your business provides to its customers. Your NSM helps everyone at your organization clearly understand how your business provides value.

 

Enhancing Organizational Focus and Alignment

Defining a North Star Metric defines the exact thing that is most important to your business, creating alignment between departments and individuals throughout your business. It’s also the beginning to ensuring that teams are focused on what’s important (increasing that NSM) and ignoring what’s not (things that don’t impact the NSM).

 

Optimizing Resource Allocation

When you have a clear definition of your North Star Metric that correlates with the success of your business, you can start allocating resources in the right ways – focusing on activities that move the needle instead of those that don’t.

Five Characteristics of a Quality North Star Metric

Organizational leaders take responsibility for choosing a North Star Metric that will guide the focus, alignment, and activities of their employees and colleagues. 

 

Measures Progress

Metrics are measurements, so your North Star Metric must be something quantifiable – something that you can measure. And while it’s okay to set goals or targets for increasing your NSM, it’s more important that you’re able to make ongoing progress by identifying the right activities that make an impact.

 

Singular

Part of the impact of choosing an NSM is that it represents a singular goal for your entire business, one that spans across departments and teams. Having a singular focus improves strategic alignment and resource allocation, leading to faster results.

 

Descriptive

A descriptive NSM is one whose definition is clearly understood across departments in the same way. There should be no room for ambiguity when it comes to understanding what exactly is being measured, and even how that measurement is collected. 

 

Reflects Customer Value

The best NSMs correlate strongly with the value a business delivers to its customers. The idea behind this is simple: creating value for customers leads to business success, so if we can increase a NSM that correlates with long-term customer value, it should also result in the long-term success of the business.

 

Leads to Revenue

For subscription-based SaaS companies, business success is inextricably tied to revenue or ARR/MRR. To account for this, NSMs must be tied to revenue such that increasing the NSM leads to long-term revenue and ARR growth.

4 Examples of B2B SaaS North Star Metrics

Increasing your NSM should always lead to increased revenue, but it’s not always useful to use gross revenue or ARR as your north star metric. Below, we provide four examples of B2B SaaS companies who adopted innovative NSMs that helped define their value to customers and accelerate their growth.

 

Spotify NSM Focuses on Consumption Growth

Spotify’s NSM is the total time spent listening to music on the platform. 

More time spent listening on the Spotify platform leads to increased ad revenue from free users and increased subscriber retention, so this NSM appears to correlate strongly with both customer value and business success.

Spotify’s NSM is an output metric, a measurement of outcome. By clarifying the desired outcome, Shopify has been able to identify upstream activities and implement new features that support the desired outcome and increase the NSM.

 

HubSpot CRM Optimizes for Engagement

Hubspot executives have gone on the record saying that HubSpot CRM’s NSM is “the total number of weekly active teams”. 

This NSM connects strongly with both customer value and business revenue. Each team represents an active subscription, and HubSpot also knows that active teams are less likely to churn. HubSpot can increase its number of weekly active teams by adding new accounts, as well as by ensuring the success and retention of its existing customer base.

 

Superhuman Focuses on Delighting Customers

Superhuman is a performance-optimized email client that uses Net Promoter Score (NPS) as its NSM. The company surveys its users regularly to measure their overall satisfaction and willingness to recommend Superhuman to their friends. 

By focusing on user experience as an NSM, Superhuman can direct their attention towards activities, updates, and new features that genuinely delight customers. 

 

Teachable Grows by Optimizing for MRR

While revenue isn’t always the best NSM, SaaS businesses have succeeded by focusing their efforts on improving MRR.

One example is Teachable, a SaaS course platform that achieved great results by switching its NSM from monthly active users (MAU) to MRR

Teachable found that focusing on MRR made revenue predictions more accurate by accounting for customer retention. The focus on MRR also led to a number of new initiatives, including new features and pricing that might have been overlooked while focusing on MUA.

Directive Consulting Achieves Marketing Excellence with North Star Metrics

North Star Metrics are ultimately a management technique for getting teams focused on a singular, well-described, critical objective. At Directive, we consistently rely on North Star Metrics to guide our decision-making, activities, and measure success in both internal and external marketing campaigns.

Learn how Directive Consulting leverages revenue-tied NSMs to focus our marketing efforts and maximize customer generation for our B2B SaaS clients.

 

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