Why revenue should not be your most important metric
You'll never truly be focused on long-term growth
Hi there,
What is your most important metric?
The one you set as a target? The one you tell investors about?
Revenue?
Please, please, stop.
Your North Star Metric, your most important metric needs to be something that drives value for you and your customers long-term.
Get caught up on revenue and you’ll:
Focus on short term strategies like discounting
Not look at what drives profitable and sustainable growth
Focus on increasing revenue instead of value for your customers
What is a better metric for a D2C startup?
Something that reflects value to both sides, is quick to measure (as much as I love 3 month retention it is a lagging metric), grows on a regular basis and is absolute, e.g. a percentage can be optimised without growth.
A few examples:
Subscription product: Active subscribers in the last 30 days - Encourages focus on retention and new customer growth
E-commerce store: A measure of products sold whilst valuing bigger orders, e.g. for a protein brand # shakes enjoyed or measure of products sold to returning customers (love an extra focus on retention)
Sustainable brand: A measure of environmental impact through the product you offered, e.g. a brand that reduces plastic used, how much plastic has the sale of your products saved.
Then you want to sense check it and add caveats to prevent work arounds, e.g. if you have a problem with short-term discounting what is the maximum discount allowed? Or too much focus on new customers, what is the minimum that have to be returning.
So it doesn’t solve all the challenges of revenue, but at least gets you thinking about driving impact and value vs increasing revenue.
If you’re unsure as to whether you’ve chosen the right metric, you want to be able to say a big “Hell yes!” to these four questions about your NSM:
Does this help the customer reach their end goal? Does it help the end customer get the intended result they want from the product/service?
Does this apply to all the customers? Does it add value to all the customers?
Is it measurable for you? Can you quantify it and measure your progress towards it?
Does your NSM grow frequently? Is it a metric that you see growth in on a daily/weekly basis? Otherwise, it will be hard to adjust.
To learn four more questions to ask yourself to determine whether you’ve chosen the right metric, read the full article below.
Recommendation
In every edition of Growth Waves, I also share a related book, individual or newsletter to check out related to the week's topic.
Struggling to set your North Star Metric? Here is a podcast episode where Grant Duncan speaks with Artem Kroupenev, the VP of Strategy and former VP of Product at Augury, about setting a North Star Metric for different organisations.
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Today’s newsletter was short and sweet, my goal is always to drive the maximum value so if you prefer this to a longer in-depth newsletter, just email back YES! And we can do more 2-3 minute newsletters.
Daphne