Day 2: Finding your North Star
So you want to increase conversions, huh.
How would you know if you’ve improved after a redesign? How would you know what changes to make? Should you work on the top, middle or bottom of your funnel?
This is the scenario we’re constantly presented with as an agency.
And this is why we start all our projects with research (and that’s why it was the topic of our first post).
For example, do you know how much a customer is worth? Or their average order value? What’s your revenue per click? And along with your churn rate, do you also calculate your revenue churn?
What we’ve found is that very few businesses 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 track of their progress and trajectory can literally shortcut months of set up and research because they made these numbers a part of their internal processes; they know their KPIs.
There are hundreds of potential KPIs you could track, but to analyze your past performance (and predict your future success), you need to focus on one in particular. We’ll call this your North Star metric.
The difference between your North Star and other KPIs is in their purpose.
- The North Star is a leading indicator, meaning it’s a predictor of future success. It tells you how, by solving customer problems, you can increase revenue for your business. It also focuses on the value for your customers.
- Your secondary KPIs are lagging indicators that tell you what happened in the past and help 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 three main 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’ lives?
Take this example from Netflix’s vision in 2011:
- Becoming the best global entertainment distribution service
- Licensing entertainment content around the world
- Creating markets that are accessible to filmmakers
- Helping content creators around the world to find a global audience
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?
Understanding your industry and how your business model fits inside it will inform which metrics you should keep track of. Think about your customer journey and what potential KPIs you could keep an eye on.
Subscription and SaaS businesses, for example, need to know how much each customer is worth, their recurring revenue every month and the percentage of customers who cancel. And if they offer a free trial, what percentage of users convert into paying customers.
Ecommerce companies need to look at the value of an average order, the amount of people who “add to cart” without buying, and cost of acquiring new customers (via ads, etc.).
What are your business goals at this stage?
Once you understand what you need to focus on in your industry, think about your business’s maturity and goals. These are very subjective and depend on your trajectory/ambition.
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 in a customer-centric way.
PS. We’ll show you how to track your KPIs using Google Analytics in a later post.
Go through the questions we’ve provided and brainstorm:
- Your customer engagement model. Are in the attention, transaction or productivity market?
- Your business’s vision. How do you see your business improving your customers’ lives?
- 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?