Why counter metrics are critical for SaaS businesses

Founders set North Star metrics for the business.

Executives set OKRs for their divisions.

Managers set output goals for individuals.

We’re human; we love goals. They give us something to look forward to and push towards.

They ground us emotionally and help invoke the dopamine to take action, the serotonin upon success, and the anxiety and impulse to work harder when we miss them or appear to be on track to miss them.

When done right, a great goal can create team-wide alignment.

All hands on deck, the founder says! Everyone furiously gets to work and crushes it!

North Star = nailed!

Great!

Great?

Not so fast.

At all costs…

The pursuit of a goal at all costs and its achievement is not always an unilaterally good thing.

Why?

Well, there are many associated impacts and externalities that make up your business's broader, bigger health, which your efforts can harm.

Let me give an example here for clarity.

Why a north star can lead you astray

You’re the head PM for a task management SaaS product. You’re talking with your CEO: things aren’t great. MRR growth is slowing, and the board wants to see progress!

You, the CEO, and the head of Sales and Marketing agree to set an aggressive North Star metric: 50% MoM MRR growth for the coming quarter. It’s ambitious, but the next round of funding needs to be closed.

Everyone on the sales and marketing team starts hustling AND your company offers a 30% discount for new folks who self-serve onboard.

Over in your world, change isn’t as quick, but you do your best:

• You talk with your team and quickly research the best ways to increase your self-serve onboarding conversion rate for this discounted plan.
• You increase your pop-ups and free → premium upgrade messaging, bringing it to aggressive levels.

As three months go by, it seems to be working! You notice some up-and-down churn numbers, but your new user base is growing fast, so you don’t worry too much. You nervously await the results.

The quarter closes: the team did it! Growth was 52%! Everyone celebrates, and the fundraising round goes well.

What happens next?

Over the next few months, you start to notice higher-than-usual churn. You chalk it up to an anomaly, but the trend continues. Before you know it, you realize that this huge cohort of new users isn't actually sticking around. They came for a low price, but you failed to retain them.

Plus, your long-term user retention has plummeted because of your aggressive pop-ups. You didn't target them well enough, and users got frustrated by repeated and unnecessary messaging.

12 months out, you’re back trying to fundraise with a bigger burn rate and much lower MRR and user base. 😥

Enter: counter metrics

The point I'm making here is not that setting an aggressive North Star goal is bad.

However, it is essential to set a counter metric that helps you guard against over-optimization and negative repercussions from pursuing your north star.

The team could have established an aggressive MRR north star in the above example and set a counter metric for the user retention rate. As they pushed on the new MRR and users, they would’ve seen their counter metric, URR, lower, and they could’ve taken steps to mitigate churn while also trying to push growth.

This counter metric statistically and psychologically grounds a team and a company. It reminds everyone that every user flow, behavior, and pattern change has multiple consequences and that the North Star metric is the dominant goal but not the only one.

Here are some examples of common SaaS North Star metrics and a recommended counter metric.

As you can see, each counter-metric balances against the unhealthy pursuit of the North Star metric.

Is your ARR up? Great, but how is your churn looking?

Higher DAUs? Nice, but how long are those sessions actually? Are these real users actually getting value?

Your NPS score is up? That's cool, but are you sampling correctly? Or, is that a small, biased cohort that doesn’t represent the reality that you’ve got many more CX tickets from the rest of your users?

Goodhart’s law

One of the most concise ways to think about this issue is Goodhart’s law. Charles Goodhart is a British economist who coined the phrase:

“When a measure becomes a target, it ceases to be a good measure.”

While he may have been referencing Thatcher's economic policy in the 1970s, the law captures the inherent messiness of setting a specific target or goal. It can perverse a team's incentives and cause unintended consequences.

With counter metrics, we aim to find a middle ground.

Our Command AI perspective

I was curious how our CEO and co-founder, James, thought about this core tension. We set North Star metrics as a team and business regularly and do our best to guard against over-optimization. So I asked him what he thought about counter metrics:

“Thoughtful founders and execs usually understand intuitively that most initiatives have a fairly obvious counter metric - cost. We all know that selling dollars for quarters is bad business. I think some folks forgot during the hype cycle of 2020-2022, but now I see a much healthier emphasis on “efficient growth”.

I think the more interesting opportunity for counter metrics comes at the UX level rather than the company level. All the time, we see companies launch way too many interrupting experiences to users — upgrade now, sign up for our newsletter, take a survey, etc. The root of this bombardment is…metrics without countermetrics. Every team launching popups has a metric they want to optimize. Growth wants to optimize conversion, marketing wants to optimize their audience size, UXR wants to get as much user feedback as possibly. All are are individually reasonable, but these goals must be constrained by some metric that captures user annoyance. It’s a tragedy of the commons — each popup furthers a team’s goal, but contributes to user annoyance.

I will take this opportunity to toot our own horn. That’s why we built a counter metric into our product, called Strikes, to measure how annoyed users are finding your nudges (and give you tools to back off automatically when this happens).

A final word

It's important to set aggressive North Star goals, and pushing your team to orient around them is perfectly OK.

But to avoid over-optimization and unforeseen negative impacts, be sure to set at least one counter metric to guard against the downside of your North Star pursuit.