What is a SaaS North Star Metric?

The North Star Metric serves as a primary indicator for outlining the core value a SaaS company delivers to its customers and for monitoring changes in customer base and revenue to assess the business’s overall performance. An NSM is not a performance dashboard or a revenue target. This number serves as a reference for product, marketing, and customer support teams regarding a shared vision. “Winning” in terms of collaboration tools would be defined as weekly active teams, and for payments as successful transactions. An NSM is so significant for SaaS especially, since in one SaaS business, growth may come along a hundred directions at once; for example, new customer creation, upgrading a current customer, getting customers to use a new feature, etc. The coordination of various teams can be influenced by the presence or absence of a unified goal.

KPIs (Key Performance Indicators) can track hundreds of aspects: customer churn, acquisition, monthly recurring revenue, support ticket volume; a company may track many of them at the same time. NSM often functions as a primary metric; other KPIs tend to exhibit corresponding variations in its presence. Imagine your KPIs are readings of instruments, while the NSM is where you’re heading. While a sales department could meet its sales KPI and sign-ups (sales KPI), but customer usage (NSM) remains the same, this scenario indicates that your growth has to have customer value to be real growth.

Often, SaaS product teams are the only ones who can identify the right target customer and how to reach them. An NSM plays a role for these teams in discussions about their work with other teams. The operation of a company with distinct scorecards across its product, marketing, sales, and customer success teams can lead to specific outcomes; a focus on sales volume, for example, may have implications for customer support in managing increased churn.

• Everyone’s effort is directed toward achieving the same main objective rather than being driven by department-specific KPIs.
• An ideally selected NSM may indicate revenue change and allow teams to react early to revenue decline.
• An NSM incorporates customer benefits as a basis, alongside considerations of profit.
• A company can evaluate product changes or campaigns by referencing the standard of customer value.
• A decrease in metric fatigue may lead SaaS teams to direct their efforts toward factors influencing business results, rather than monitoring numerous KPIs.

A meaningful NSM captures what the customer obtains through the frequent use of and payment for the product. 

Begin with the question: what repeated user action indicates that the user is in fact obtaining value, apart from simply logging into the system?

The NSM, in the first place, for a project management tool might be “Tasks Completed Per Week”, and a finance software company or a payments platform might define its NSM as “Successful Transactions.” ​‍​‍​‌‍​‍‌

SaaS​‍​‌‍​‍‌ teams usually choose between engagement-based NSMs such as frequency or active sessions, and outcome-based NSMs such as value delivered, tasks completed, revenue processed. 

Engagement metrics can easily be tracked and react fast to any product changes, but the problem is that they often motivate the user without delivering any real value. On the contrary, outcome-based ones directly measure customer success, but it’s harder to do so across a large number of customers with very different profiles.

Most mature SaaS companies eventually land on a metric that blends both: frequent enough to track, but tied to a genuine outcome.

Laying out an NSM first and foremost requires leaders to define and explain a new measure clearly and then integrate the metric into the team’s objectives (OKRs), dashboards, and regular meetings so the metric will remain alive throughout the company and will not be merely a one-slide from the meeting. Most SaaS organizations have their NSM reviewed every year or even earlier if there are significant changes in the product, market, or business model, so a metric that fits at 50 customers does not automatically fit the business when we reach 5,000 customers.