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Before diving into North Star Metric specifics, we invite you check out our articles about other top Customer Success KPIs that are in use today.
North Star Metric is a strategic cross-department metric that helps SaaS businesses establish a clear direction for long-term growth. Once the company’s core value proposition is established, all departments can work together in sync.
A well-established North Star helps on multiple fronts:
You should also not confuse North Star with One Metric That Matters.
One Metric That Matters is quite similar to the North Star Metric, but they are two different things. The former applies to specific teams in the company that want to focus on one feature or goal for a predefined time frame, usually a few months. North Star Metric is more of a long term guide that applies to all departments. The North Star should ideally capture your customers’ ultimate “aha” moment.
Related: All You Need to Know About Net Revenue Rate (NRR)
Your North Star Metric should not be based on revenue. It should be determined by asking key questions related to your value proposition and your customers’ biggest success moment. Needless to say, these moments need to be measurable.
Let’s take a look at how Spotify calculated its North Star.
First, the company looked into what value customers get from the platform. Then it looked into Pirate Metrics that could impact the North Star Metric. Pirate Metrics are also known as AAARRR (Awareness, Acquisition, Activation, Retention, Revenue, Referral). There were also a wide range of input metrics that had to be considered at the time. But “Time Spent Listening to Music” was eventually chosen as the North Star Metric.
If external factors are constantly impacting your North Star Metric, you need to get back to the drawing board. For example, you can’t have 5-star ratings as your North Star Metric if you are a tourism service provider. This is because the ratings can be affected by bad weather, flight delays, hotel issues, and other third-party variables. The North Star Metric should encapsulate the core functionality of your business.
Related: 5 SaaS Customer Success Pro Tips
LinkedIn is a great example of a leading company that had to experiment a bit before finding the sweet spot with its North Star Metric. The whole case study has also been made public and is a great way to understand how the process works.
LinkedIn’s initial North Star Metric was the “Number of Endorsements Given” by members. Since this is a professional network powered by professionals and recruiters, this idea made sense in 2012 when this newly-introduced feature was gaining traction fast in correlation with the usage rates. Secondary engagement metrics were also defined at that time – unique recommendation recipients and endorsers.
Unfortunately, the number of falsified endorsements spiked as the platform started scaling up, eventually making this North Star Metric irrelevant. Following the big Microsoft takeover, LinkedIn went with “Monthly Active Users” as its new North Star Metric, just like Facebook had done earlier. The platform had simply become too versatile, diversified, and feature-rich to focus on a specific user-action or activity.
Here are some industry benchmarks.
Your North Star should define your customers’ ultimate “aha” moment and should be directly linked with business growth. Once you have nailed it, you should be able to make good progress. More and more SaaS companies are also supplementing their North Star Metric with a comprehensive Objective and Key Result (OKR) framework, which helps orchestrate cross-department operations.