In 2012, 123FormBuilder was just beginning to gain traction. As a relatively new solution in the still-young e-signature market, FormBuilder enjoyed modest success — the young platform quickly rocketed to 10,000 users in just a few years. In an effort to grow, they even solidified their promise and optimized their onboarding process. As 123FormBuilder found, however, the promise was just the tip of the iceberg.
Boiled down, every SaaS business’s focus is the same: getting visitors to become customers. With our models built around lifetime value, understanding retention and churn is essential to successfully growing a brand. To give a better understanding of the customer experience, industry experts developed the concept of the North Star Metric. Used effectively, this marque metric can increase the lifetime of your users by offering key insights on the customer experience.
This article will define the North Star Metric and explore its benefits, using 123FormBuilder as a consistent example. To learn more about defining and measuring your product’s promise, visit our previous edition.
- The North Star Metric
- How to Identify your North Star Metric
- The Importance of the North Star Metric
- Moving Forward
The North Star Metric
Retention is the core difference between a SaaS company and e-commerce business. As SaaS experts, insight on churn and retention is crucial to driving a successful product.
Simply defined, the North Star Metric is the minimum set of actions users complete in order to decide whether or not to continue with a product for the long term. For example, Facebook’s key metric is seven friends added; Slack’s benchmark is 2,000 messages sent. Uncovered using extensive user behavior data, this guiding light identifies specific behaviors that, when achieved, lead to significantly higher rates of retention and conversion.
Where your product’s promise was a result of design, the NSM is the result of discovery. Unlike your promise, which is defined and set in your activation process, the NSM is defined purely by the data — the behavior of your customers.
How to Identify your North Star Metric
Like you, 123FormBuilder was unsure how to identify their own North Star Metric. Thankfully, the discovery process is five simple steps that build upon our previous work. This process is as follows:
- Define your onboarding/activation metric (your product promise)
- Define what the physical steps your users must go through to become activated
- Determine how long it takes for your users to become activated
- Find the common conversion activities
- Identify your North Star Metric
When 123FormBuilder started to identify their own NSM they had over 10,000 sign ups, with an above average boarding rate and strong 1st week retention average.
Defining the activation process
Another name for onboarding, activation is the process users go through from activating their account until the moment they first receive the promise of your product. Unlike a product guide or email sequence, the activation process is the technical requirements that need to be achieved to experience your product. In our previous edition, we discussed onboarding in depth.
For the North Star Metric, activation is key to creating an accurate datapoint. At its core, activation divides users into two groups: those who reached a product's promise and those who did not. The North Star Metric is most effective when it accurately portrays the behavior of users who have experienced your product’s promise; leveraging the activation process’s results allows the NSM to avoid polluted and irrelevant data (users who did not use your product).
For 123Form Builder, their original activation process looked like:
- Created account
- Created form
- Publish Form
- Received submissions
To make the most effective North Star Metric, 123FormBuilder would thus want to analyze the behavior of all clients who published a form AND received submissions. Anyone who has not accomplished these four basic steps would not offer reliable insight.
Determining your activation flow
The activation flow is the technical requirements that people need to go through in order to experience a promise. We know we sound like broken records, but understanding and optimizing your product’s activation flow is vital to drive a successful experience.
Specifically, the activation flow of the onboarding process are the steps that must be done in order to be successfully onboarded — these touchpoints cannot be bypassed. This linear structure allows us to curate an onboarding experience that best showcases our product’s promise. In the case of the North Star Metric, this helps ensure the metric best reflects the customers that achieve the product’s promise.
To optimize their activation workflow, and to thus identify a more accurate NSM, 123FormBuilder redefined their process as:
- Create account
- Create form
- Add fields
- Test form
- Receive submissions
By altering their onboarding process, 123FormBuilder can ensure that their ideal customer base is successfully being introduced to their product’s promise.
Determining time to activation
In this step, we are looking to calculate how long the average user takes to accomplish the technical requirements and complete the onboarding process — a step we’re sure most of you expected.
Instead of merely measuring every user's time to activation and solving for an average, we recommend utilizing algorithms that filter outliers and other factors that may pollute results; for our series we have been using an InnerTrends solution. Using an advanced solution can help identify customer profiles with common behaviors, which can be analyzed for a better understanding of the ideal customer.
Because the North Star Metric is dependent on an accurate perspective of the ideal customer, having an optimized activation process, both qualitative and quantitatively, is essential.
When analyzing 123FormBuilder’s activation workflow, InnerTrends’ algorithm identified 39% of users that act with a common behavior. Because of their similarities, and backed by user data, these customers become our new “average user”, while the remaining 61% become outliers.
This new approach allows us to come to the conclusion that the average customer completes their onboarding process in just 10 minutes. Without removing the atypical users, our average onboarding time would far exceed average behavior, which in turn would impact 123FormBuilder’s North Star Metric.
Find common conversion activities
After wading through our three previous steps, which were largely the same as our work on our product’s promise, we can begin the interesting part of discovering the North Star Metric. Using the population of “average users” and InnerTrends built in tools, we can analyze the behaviors of customers to identify common conversion activities.
Common conversion activities are specific actions that users engage in on a noticeable level, which result in a purchase or sign-up. By identifying common conversion activities, we can answer the question: “what are differences in the actions of accounts that return versus the accounts that churn?”
For 123FormBuilder, the InnerTrends algorithm formed the following report. Of its major findings, it identified “received submissions” as the primary core event with a high impact on retention. While perhaps obvious for a product like 123FormBuilder, this data gives confirmation to a reasonable assumption — far more valuable than just assuming submissions impact retention. Further, this insight suggests that after receiving submissions on two separate days that retention grows drastically.
Unlike 123FormBuilder, your brand may not have such an obvious and simple conversion activity. Slack, for example, found their common conversion activity is 2,000 messages sent. Regardless of the behavior, it is important to try and minimize the action as much as possible — the less required to convert, the higher the impact of an event.
Identifying your North Star Metric
After putting in the excessive groundwork needed to get to this step, identifying your North Star Metric is as simple as a basic equation:
North Star Metric = Core Metric + Common Conversion Activity + Time Frame
Within our example of 123FormBuilder, our equation would then look like:
NSM = Submissions Received + Receive Submissions + Two Different Days
Rewritten, our North Star Metric is “form submissions received on 2 different days, after the first form is tested.” From this definition, we know that in order to convert users, 123FormBuilder must assist consumers in receiving two submissions on different days.
Selecting the right metric
In most cases, there are three or more competitors that emerge as a potential North Star Metric – how do you decide the right one, then? Like all other things, a methodical approach is best. To best select your North Star Metric, we recommend the following five steps:
- Set a goal for each contender
- Measure the retention of each action over time, compare
- Design experiments to impact each goal
- Execute experiments, analyze impact
- Establish a winner
Like all other experiments, we recommend using advanced tools like InnerTrends. If you’d like help in evaluating your own North Star Metric, feel free to contact Joe directly.
The Importance of the North Star Metric
So what is the importance of the North Star Metric? And is it really that impactful?
From our experience with 123FormBuilder, we measured the retention of those who reached the North Star Metric, as well as those who did not. The results are staggering:
82% of accounts that received submissions in two different days returned in month 1; the retention rate of these accounts continued to hover around 80% for the entire first year. Accounts that simply completed the onboarding process, however, had a retention rate of 74% in month 1; throughout the remainder of the year, retention would hold around 70%.
Just how different is 10 points? As the Harvard Review notes, a 5% increase in retention can lead to a 25-95% increase in profit.
Like finding your product’s promise earlier, the North Star Metric is not the end of the road when it comes to making users stick. Instead, the NSM is just a measuring tool, capable of giving you an idea of the value users are actually experiencing.
The best products allow users to experience the North Star Metric organically, holding the users hands instead of forcing them. For example, while Facebook’s metric is seven friends, they do not add them for users. Instead, Facebook gives users cues and guidance to discover and add their own friends – giving users an organic experience. Like Facebook, your organization must find methods to guide users towards organically experiencing your promise and common conversion activity.
Like most other things in the SaaS world, the North Star Metric is a living metric and can be subject to change. As your product continues to grow, it is important to consistently test and measure changes that impact your North Star Metric. Facebook, for example, continuously worked on tweaking their algorithms to show more friends and contacts; after years of changes, they got their North Star Metric (7 friends) to result in a 99% conversion rate.
Regardless of your metric, the most important part is ensuring that your North Star Metric stays consistent with the typical customer experience. As your product begins to grow and change, make sure to reflect upon its promise and common conversion activities. As long as you can keep your NSM relevant, it will serve as a reliable guiding light.