Finding Your North Star Metric (Examples from the Best SaaS Companies)

About this video

Dan Martell teaches how to find a North Star Metric, a concept he says he learned from Sean Ellis, creator of the term GrowthHackers and the High Tempo Testing framework. He defines it as a number that shows customers are getting value and the business is getting value, usually a leading indicator of revenue. Martell recounts building Clarity after, he says, raising 1.6 million in funding and struggling on product, monetization and growth. On Ellis’s advice his team chose EDS — Expert-Driven Sign-ups — because paid acquisition did not work on their marketplace take, so experts promoting their own profiles had to drive sign-ups. He sorts businesses into three games: attention (Facebook, Netflix), transactional (Amazon and e-commerce), and productivity (Trello, Asana, Salesforce, Slack, Dropbox), noting SaaS companies play the productivity game. Examples he gives include Airbnb’s nights booked, Facebook’s daily active users, Salesforce’s average records created per account, and Adobe’s number of engaged cloud subscriptions. His formula asks three questions: does it measure customer value, is it a leading indicator to revenue, and is it specific to your business? He illustrates specificity with a Volkswagen dealership’s absorption rate — the percent of overhead covered by parts and services. He closes by offering the Precision Scorecard to track the metric weekly to annually.

Key takeaways

• A North Star Metric, per Martell, tells you both that customers are getting value and that the business is getting value, and is usually a leading indicator of revenue growth.
• Martell says his Clarity team chose Expert-Driven Sign-ups (EDS) because their marketplace percentage did not support paid acquisition, so expert self-promotion had to drive growth.
• Businesses play one of three games Martell lists: attention, transactional, or productivity — and SaaS companies, he says, are focused on productivity.
• Examples given include Airbnb’s nights booked, Facebook’s daily active users, and Salesforce’s average record created per account.
• The formula Martell gives checks three things: it measures customer value, it is a leading indicator to revenue, and it is specific to your product — illustrated by the dealership absorption rate, the percent of overhead covered by parts and services.

Episode details: published January 18, 2021 · 9:11 long. Summary written by Self Growth Videos from the episode itself. Business results and any income figures mentioned are Dan Martell’s own claims, shared for education — they are not typical or guaranteed.

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