Day 2: Finding your North Star
So you want to increase conversions right?
Let’s say you’re a CRO genius, your design and copywriting skills are unparalleled. But you have to work on a business you know nothing about.
How would you know if you’ve improved or not after a redesign or after any change? Let’s take a step back, how would you know what changes to make? Should you work on your top, middle or bottom of the funnel?
Not to self-proclaim ourselves CRO geniuses, but this is the scenario we’re constantly presented with as an agency.
And this is why we start all our projects with research as we’ve mentioned in our last post.
What about you? As a business owner you should know what drives your sales and marketing efforts no?
For example, do you know how much a customer is worth? Or their average order value? What about the revenue per click or the cost per conversion? And along with your churn rate do you also calculate your revenue churn?
What we’ve found by working with clients in many industries and with different business models, is that very few know the answers to these questions. Which is surprising because all of them are doing really well.
Thing is, they could do waaaay better if they knew their numbers.
Businesses who keep track of their progress and trajectory, can literally shortcut months of set up and research, because they have made those part of their internal processes. They know their KPIs.
A KPI (Key Performance Indicator) is a measurable value that tells you how well (or how bad) your business milestones are progressing.
There are hundreds of potential KPIs you could track, but to actually be able to analyze your past performance and most importantly, predict your future success, you need to focus on one in particular which we’ll call your North Star metric (and only a few supporting KPIs).
The difference between your North Star and these KPIs is in their purpose.
- The North Star is a leading indicator, meaning it’s a predictor of future success and it tells you how, by solving customer problems, you can also increase revenue for your business. It focuses on the value for your customers.
- The KPIs are lagging indicators telling you what happened in the past and helping you understand which buttons to push to get closer to reaching your North Star.
So let’s get started, first ask yourself this question:
How are you engaging your customers?
There are mainly 3 types of customer engagement models used to evaluate businesses:
Attention: how much of your customer time you take (social media or streaming service)
Transaction: how many transactions users are making (ecommerce store)
Productivity: how many critical actions users are performing (app or SaaS)
Once you know the game you’re playing, look broadly at your business:
What’s your vision?
How do you want your business or product/service to improve your customers’ life?
Take this example from Netflix’s vision in 2011:
By combining the customer engagement model (attention) and their vision, a hypothetical North Star for Netflix could be the # of subscribers watching > hours of content per month.
Now in order to find your supporting KPIs or lagging indicators, ask yourself these questions:
What is your industry?
Knowing the industry you operate in and your business model will inform you on the type of metrics you should keep track of. Think about your customer journey and what potential KPIs you could keep an eye on.
Subscription and software as a service businesses for example, need to know how much each customer is worth, what’s their recurring revenue every month and the percentage of customers who cancel. And if they offer a free trial, what the percentage of users that converts into paid accounts is.
Ecommerce companies need to look at the value of an average order, at the amount of people who add to cart without buying and at how much they spend on ads vs how many customers it gets them etc.
Is your business starting up or established?
New businesses have to focus on lead generation and customer acquisition a lot more than established ones, who have the “luxury” and the cash to be able to allocate their resources to customer retention and advocacy (when their customers love them so much that they spread the word).
Knowing where you stand, will allow you to make calculated decisions and narrow down on the few metrics you need to focus on at this stage. As author Ramit Sethi says, “Don’t try to be 40 before you’re 40”.
What are your business goals at this stage?
Once you know what you need to focus on in your industry and at your stage, it’s time to think about your business goals. These are very subjective and depend on your trajectory/ambition.
These are ideas and prompts you can use to brainstorm or adjust the metrics you’ll use to track and predict the success of your business. Shopify has a great list of potential KPIs you can track and how to calculate them.
We know that this is hard work. Hence why a ton of businesses don’t do it upfront.
But, when you invest some time in thinking about your North Star and the metrics supporting it, you instantly enter a new world. The world of data-backed decisions.
This is how you start dominating your niche.
This not only guarantees you have a clear path to follow to crush your competition, but it also allows you to do so, by thinking first and foremost about your customers.
In one of the next posts you’ll learn exactly how to track your KPIs using Google Analytics.
Go through the questions we’ve provided and brainstorm:
- Your customer engagement model. Are in the attention, transaction or productivity market?
- Your business’ vision. How do you see your business improving your customers’ life?
- Your North Star. What metric will you use to track your progress?
- Three supporting KPIs. What levers will you have to move to adjust along the way?