This article discusses how to set and measure the North Star metric of a product after SaaS (Software as a Service) revenue reaches the 10 million level. Through a specific example of a tool-based SaaS product, the author explains how to identify, define, and quantify the North Star indicator, as well as the challenges and solutions encountered in practice.
I always thought that the North Star indicator was the standard for SaaS companies. Today, I have only discovered that some SaaS companies have been in business for a few years, and either do not have a North Star indicator at all, or are still using customer renewal rate and customer satisfaction as the North Star indicator for customer success teams and product teams.
It's like "running with your head covered", and it's extremely dangerous.
The North Star metric is one of the most important process metrics for SaaS. If the renewal rate is the "barometer" of SaaS, then the Polaris indicator, as its name suggests, is the "compass" of SaaS.
The "barometer" measures the health of the SaaS and is an outcome indicator, while the "compass" indicates the specific path to reach and is a process indicator.
This metric measures whether we are creating value for our customers, and it is also the foundation for SaaS companies to achieve long-term business value, and it perfectly implements the customer success tenet of "help customers succeed, and then we succeed", ensuring that we are always on the right path.
Figure 1 North Star indicator of foreign SaaS products
Regarding the design principles and steps of this indicator, Ms. Qu Hui elaborated in great detail in "Practical Notes on Growth Hacking in Silicon Valley".
In the previous practice, the author found that the North Star indicator has two very important functions:
1. Demonstrate and measure the value of the product
In the design step of the North Star indicator, the first thing is to explain the core value of your product to customers, and then try to find the product data indicators that can quantify this value. This process requires the CEO, product, customer success, sales and other departments to participate in discussions, and even do a lot of customer interviews to understand why customers use the product and pay for it.
Figure 2 Differing views of the teams on the North Star indicator
The so-called "pretending to cultivate the truth" is a very valuable process of discussion.
First, through discussion, we can demonstrate whether the product provides value to the target customer.
There are some SaaS companies that may not understand whether their products are useful or not, and they start selling them according to the gourd paste scoop.
The second is to discuss what the core values we provide to our customers are clear.
What exactly do customers pay for, and what causes customers to lose, these very simple truths are sometimes more important than methodology and data analysis.
2. Promote the full implementation of customer success strategy in the company
As the head of the customer success department or the customer success manager, have you ever found yourself in a situation like this:
- There are many requests that can promote customer activity, but the product department is very slow to schedule, or even directly refuses;
- I want to improve the help documentation and beginner's guide on the product, but find it difficult to mobilize resources to do it;
- After communicating with the customer activity management function for a long time, the product schedule has not been able to go up;
- We have undertaken many customers who can know at a glance that it is impossible to renew, and the customers cannot be contacted and are unwilling to cooperate with the use of the product;
In the final analysis, these problems are caused by the differences in the goals of each department.
The product department has its own rhythm and planning, the sales department is burdened with huge new revenue targets, and the customer success department receives a lot of customer feedback but struggles to mobilize resources to improve customer engagement, customer renewals and other metrics.
The North Star indicator can help solve this problem.
The North Star indicator is a company-level metric, not only the customer success department needs to carry the North Star indicator, but also the product department and the sales department need to carry the North Star indicator. This is an important condition and performance for the full implementation of customer success strategy in SaaS companies.
Case study: Quantification of the North Star indicator of a tool-based SaaS product
The main value of a tool-based SaaS product is to help education and training institutions improve the efficiency of education management and save costs.
In the early product PMF stage, the main functions of this product are teaching scheduling, roll call, attendance notification, class consumption statistics, etc., and the descriptive indicators of Polaris are: through online class scheduling and class elimination operations, reduce the operation error rate and improve operation efficiency.
So how to quantify this operational efficiency, or what kind of data results appear to indicate that the organization has obtained this operational efficiency improvement? Let's take a look at the process of system operation (as shown in Figure 3):
(1) First of all, the offline courses and classes should be established in the system.
(2) Then, you need to enter/import the student data into the corresponding course and class.
(3) Then complete the student's weekly class schedule and teacher.
(4) The last teacher or front desk completes the record of the student's attendance at each class.
(5) Finally, the system forms a record of the consumption of each course and the remaining consumption data.
Figure 3 Operation flowchart
When sorting out this operation flow chart, it is actually sorting out the actual offline business flow of the organization, and a major premise for improving efficiency is that the offline business operation of the organization is completely moved online, forming a small closed loop online.
Therefore, it can be clearly concluded that as long as the institution completes the roll call (also called class elimination) operation in the course scheduling system, it means that the institution has replaced the offline operation with online operation in this link.
Therefore, the specific quantitative direction of this North Star description indicator can be the proportion of scheduled courses, that is, the percentage of courses that have been scheduled, and the higher this ratio, the better the effect of the institution's use of the tool-based SaaS product.
The following is supplemented with some operations in special scenarios, such as leave, make-up classes, class transfers, etc., which can basically cover the vast majority of scenarios of offline business, so this indicator can basically be quantified.
Finally, what percentage should this roll call ratio be set? What is the statistical period? Here are a few factors to consider:
- The relationship between different proportions of data and renewals for different periods. This is easy to understand, and we need to look at the correlation between this metric and renewals, and try to find a proportion value that is more correlated.
- The current data distribution situation is the proportion of users who meet the Polaris index, and it is generally appropriate to choose 60%. This is easy to ignore, even under the premise of linear correlation, the higher the ratio, the better, it depends on the current distribution of data and the difficulty of the follow-up indicators.
- The operating cycle of the customer's actual business. This requires us to understand the actual business operation cycle of the customer, and since the general offline organization scheduling is arranged on a weekly basis, we can tentatively set it to be counted once a week.
Through the above analysis, we obtained the correlation data between the roll call ratio score (M value) and the renewal rate of a group of customers in the last week of the third month, as shown in Figures 4 and 5:
Fig. 4 Correlation between different M values and renewal rates
Fig. 5 Correlation between the North Star indicator (M) and the renewal rate
It can be seen that the North Star indicator and the renewal rate show a very strong correlation, which basically verifies that "the higher the roll call ratio score of class scheduling, the higher the renewal rate". However, from the distribution of the data, this linearity is still somewhat unstable and fluctuating, especially in the 20th and 30th percentiles, assuming that we take the value of the Polaris indicator from this set of data, then this score will most likely be taken at 20 points.
The correlation between this value and the North Star above 20 is just over 70%, which is a clear correlation, but it is still far from the salient feature we want (85%).
We rechecked this set of sample data and finally found that we ignored an important problem, that is, as mentioned above, most of the nodes for customer renewal occur some time before expiration, and the decision is easily affected by the usage in the previous period.
This set of data is taken from the data of the first 3 months of user use, this data is too far away from the time node of user renewal, users may use it well at the beginning, but then slowly lose it, or it may not be used well at the beginning, and then slowly enabled, and finally renewed, and finally verified this point at the actual customer data level.
Therefore, we have made a new set of data, the average data and renewal rate results of the last week of the customer 1 month before expiration to verify, this set of data once again verified our hypothesis, the correlation between the data above 50 points and the renewal rate has reached more than 85%, and the higher the data, the higher this data.
Through the comparison of this set of data (Figure 6), we can basically determine the North Star indicator of this tool-based SaaS product at the current stage, that is, the roll call ratio of weekly class scheduling reaches 50%.
Fig. 6 Correlation between M value and renewal rate in the month before expiration
This article is written by Everyone is a Product Manager Author [SAAS Old Driver], WeChat public account: [SaaS Old Driver], original / authorized Published in Everyone is a product manager, without permission, it is forbidden to reprint.
Image from Unsplash, based on the CC0 license.