Council Post: Essential North Star Metric Strategies For Businesses

President at CRMDialer & IRIS CRM. Overseeing the growth of e-commerce payments & writing on payments, growth hacks & SMB efficiency.

I recently published an article on how to establish your company’s North Star metric (NSM). Besides being a crucial metric for tracking any SaaS business’s growth and success, it has one more advantage: Based on your NSM, you can also set your pricing, which is one of the most important aspects of running a SaaS business. Here’s why your metric should influence your pricing and how the two depend on each other.

North Star Metric = Value

There’s quite a body of work on SaaS pricing out there. From pricing based on your own costs to pricing according to your competition, there are a number of different schools of pricing. In their own way, each of them makes sense, but they’re cookie-cutter methods that don’t necessarily work for your specific business.

On the other hand, every business has (or should have) a unique NSM. As discussed in a previous Forbes article, Slack’s North Star metric is 2,000 exchanged messages in a team. After this point, a team is bound to convert from a free to a paid account and they see value in the product. If you are a payment processor, you would look at the total number of active merchants processing with you today as your NSM.

If you’re tracking the number of users as your main guide for pricing, you will only be tracking how many users you’re getting, not how much value they’re getting out of your product. Instead, measure based on your NSM. The higher it gets, the more valuable your product is to the end-user and the more you can charge. Bake in all of your costs such as support, development and other miscellaneous fees and provide a single, easy-to-understand fee based on your NSM of value. Your clients will love the simplicity, and simple pricing helps your salespeople too!

You know when to charge more.

At a certain point in every SaaS company’s lifetime, there comes a point where you have to raise your prices. You either hired more people, your costs have gone up or a part of your service simply costs more to provide. Increasing your price is just as difficult as setting it in the first place, if not even more. No matter when and how you decide to increase your prices, your customers are not going to be happy about it.

That is, unless you base the price increase on something tangible, like your NSM. An increase in your NSM means that you should be considering an increase in pricing that your users will actually be happy to pay since they’re getting so much value out of your product.

Perhaps the best part is that you won’t have to go out of your way to find excuses for your customers when you increase your prices. When done right, customers will stick around after your increased price and you will even end up with more revenue. 

You’ll know how to choose features for pricing packages.

You don’t have to worry about just one price. Many times, SaaS companies have a handful of plans with different prices and options. The price is determined by what kind of features you get and in which quantity. If you go the usual route, you’ll go by the logic of increasing the number of features which in turn increases the price.

Pricing based on your NSM allows you to see which of your features are the ones that provide the value and which ones are deadweight. This kind of pricing allows you to focus on the features that matter and include them in your main pricing plans. As for others that are not contributing to the increase in your NSM, they can be added into a bundle deal.

Wrapping Up

Don’t set your prices based on what you think is fair or the number your customers will feel is acceptable to pay. Instead, use your North Star metric as guidance for the value that your product provides. The more valuable it is, the higher your price can go.

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