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