A North Star Metric (NSM) is an essential metric that any startup and corporation needs to discover in order to maximize their growth potential. By setting long term growth as the goal, you will have to develop a growth strategy where your North Star Metric should be in the center.
We’ve recently noticed that the term “North Star Metric” is still very unknown among our clients when it comes to building a growth strategy.
In this article, we’re going to deep dive into what a North Star Metric is and how you can find a North Star metric for your company, with which you can help your entire company create alignment and a new focus.
What is a North Star Metric?
The North Star Metric (NSM) is a metric that a company focuses on for their growth. This metric best reflects the amount of value your customers receive from your company, while at the same time being an indicator of growth.
The idea behind the North Star Metric is that if your company focuses on bringing more value to your customers, then the growth of the company will result in being positive. By having your customer receive more value, they will stay longer, buy more in the long run and most likely refer more friends to your company in the process.
Additionally, the North Star Metric will create direction to any company’s long-term growth versus short-term growth.
The most well-known North Star Metric examples are:
- Spotify= Time spent listening.
- Facebook= Monthly Active Users.
- AirBnB= Number of Nights Booked.
- Uber= Rides per Week.
As you can see, the most well-known examples are across tech startups and companies, however, we strongly believe in how any business can discover their North Star Metric.
Below, we list more examples of North Star Metrics.
Can Revenue be a Star Metric?
This is a common question among companies and our clients when talking about a North Star Metric. While it might be tempting to place revenue as the metric that everyone in your company should focus on, it doesn’t indicate that your clients are getting the most value from your product or service.
Revenue is simply the price that customers pay, while a NSM will indicate the exact value your costumes get by paying that price.
Companies that decide to place revenue as their NSM, will be concerned with extracting as much as possible from their customers. This strategy fails to achieve long term growth since customers don’t end up spending more in the long-term.
That’s why there is a huge correlation between how much value a customer gets and how much the spend for that perceived value.
When should you try to find your North Star Metric?
It might be tempting to start thinking about what your company’s North Star Metric can be or is. However, the right time to start thinking about your North Star Metric is when your company or product has achieved a degree of product market fit.
That being said, if your company hasn’t reached product market fit yet, your North Star metric until then would be product market fit, which in many cases is a strong retention metric.
In fact, we see this mistake being common across pre-product market fit companies focusing on growth rather than retention. This will result in burning and wasting your company’s limited resources of both time and money.
Benefits of Having a North Star Metric
The beautiful part of having to improve your conversion rate is that it is something you can completely control and you don’t really depend on someone or something in order to make changes as soon as you can.
When looking to improve your conversion rate for a specific page, we usually advice and implement for our clients the following components:
- Creates Alignment
Although different teams will have different goals and KPIs to focus on across your company, a North Star Metric creates alignment by having each team focus on a single metric. Ultimately, this helps everyone at your company have the same goal.
- Develops a Customer Centric Culture
As mentioned in the sections above, the right North Star Metric will be oriented on creating the most value for your customers. In order to achieve this, your company will need to focus on key components that bring value for your customer, including customer experience in all ways. This will have a direct impact on revenue and retention for your product or service.
- Creates Transparency
A North Star Metric also measures the company’s progress overall, which will give everyone at your company an overview of how well the company is performing and the value that customers are receiving. This means for employees working for a company in a growth stage to not be worried about the company’s future, creating security, and resulting in a better employee retention and turnover.
What is the difference between your North Star Metric versus One Metric That Matters (OMTM)?
Another confusion that many blogs and influencers have created among the North Star Metric, is defining it as the One Metric That Matters (OMTM).
These are the differences between the definition of North Star Metric and One Metric That Matters:
- North Star Metric (NSM) is the number on which your entire company focuses to achieve long-term growth during a period of several years to infinity.
- One Metric That Matters (OMTM) is the number on which one team focuses to achieve rapid growth for a period of 2 to 6 months.
By definition, they provide a different focus for who it is for, and timespan and length for result. In addition, the OMTM will always provide support for your North Star Metric.
Can companies aim for more than one North Star Metric?
Although many companies have established 2 to 3 North Star Metrics in the past, this is something that we do not recommend to do if your company only has one product.
The reason is simple: The North Star Metric’s goal is to create long term growth by having your company focus on bringing a single source of value to your customers.
For companies that have multiple products, such as Meta or Intuit, they can establish one NSM for each product since they have separate goals and bring value to the customer.
8 Step Checklist on Finding Your North Star Metric
After helping companies discover a great North Star Metric, we have developed an 8 step criteria to avoid going wrong with it:
After helping companies discover a great North Star Metric, we have developed an 8 step criteria to avoid going wrong with it:
- Your North Star Metric is an indicator to your client’s ‘success’.
A NSM must be a metric that reflects the success of your company in achieving its goals. It should be closely aligned with the moment when your customer gets its intended result from your product or service. For Dropbox, it is when someone can easily use their documents online. And for Airbnb, it is when you have easily booked a trip or your apartment gets booked. By aligning your North Star Metric with these customer moments, you can ensure that your company is on track to achieve its goals.
For this step, we would recommend brainstorming with your team all the “end results” that your customer wants to gain or solve.
- Your North Star Metric expresses value and satisfaction from the customer.
A great NSM system ensures that you are always measuring the right metrics. The focus should not only be on marketing KPIs, but also on Pirate Metrics/AARRR such as retention and referral. For example, for an Ecommerce Store, “the number of orders placed” is too marketing oriented and does not take into account customer satisfaction. In this scenario, the customer does not get any direct value from placing the order. A better metric would be “the number of packages delivered without complaints”. This is a more balanced approach that takes into account both customer satisfaction and measurable for you.
- Your North Star Metric must be measurable.
By having your NSM measurable, it provides vital data that can be used to track progress and identify areas needing improvement. There are many different ways to measure a North Star Metric, but some common examples include the number of times a certain action is carried out, the number of times a certain part is visible or the time you have saved people.
- Your North Star Metric is time-bound.
As any great metric, it has to be tied and based on a certain period, such as hourly, daily, weekly or monthly. Your NSM must clearly show your growth over time. If you wouldn’t base your NSM over a certain period, such as “number of people helped ever” or “total number of planted trees”, you won’t be able to clearly see your growth.
Additionally, by making NSM time-bound, it enables you to compare this period with the previous period.
As your company evolves and grows, you will be able to measure your NSM more frequently. So as a general rule of thumb, avoid starting with hourly or daily measures.
- Your North Star Metric is within your control, and not influenced by external factors.
The only external factor that must affect your NSM are your customers, since it directly reflects the bond between you and your customers.
- Your North Star Metric is a direct representation of your business growth. A North Star Metric helps measure progress and identify potential problems early on. It allows businesses to track their performance over time and see if they are making improvements. Additionally, North Star Metric provides a way to motivate employees by setting goals that are directly tied to business growth. For example, if the goal is to increase the number of successful reports per week, then employees will be more likely to work hard to ensure that each report is error-free. In sum, North Star Metric is an essential tool for any business that wants to grow and succeed.
- Your North Star Metric has a direct impact on the entire Pirate Funnel. This metric should be ambitious, yet achievable, and everyone in your company should be able to influence it. That’s why your NSM is closely linked to your company’s Pirate Funnel – the series of steps that customers take from first becoming aware of your brand to becoming loyal advocates.
For example, if you’re a delivery service with “the number of packages delivered” as your NSM, then increasing brand awareness or referral rates should result in more packages being delivered. In other words, growth in your NSM should have a positive ripple effect on all the other components of your Pirate Funnel. Conversely, if one of your AAARRR metrics starts to decline, it’s a sign that your NSM needs to be revisited. Keep these things in mind when choosing your North Star Metric, and you’ll be well on your way to achieving explosive growth.
- Your North Star Metric must be a growing metric that changes frequently. In order to get instant feedback, and iterate fast on your NSM, it must be a metric that changes frequently. By having NSM influenced by results your customer performs once per year, it will take too long before you know whether you are on the right track. Ideally, your NSM grows every day or week, so it must be an action that each customer must perform about four times a month if not more.
Great Examples of North Star Metrics By Industry
A great starting point on determining your North Star Metric is by taking great examples of similar and product-like companies. These are some great well-known examples of NSM:
Gather a complete list of examples for tech startups here.
Can Brick & Mortar Businesses Have a North Star Metric?
Even though the term North Star Metric is more common in the tech and startup world, we have successfully seen and discovered NSM for many other types of companies, including Brick & Mortar businesses.
Take the example of a small Burger restaurant business. A great NSM would be “number of weekly burgers delivered without complaints.” This type of NSM indicates that both marketing teams and operations are performing in two ways:
- Marketing is generating demand for their product through either traditional or digital advertising.
- The Operations team is fulfilling the clients desired result without complaints. This indicates that orders are being fulfilled correctly, and within a specific time frame that the customer expects, thus providing a great customer experience and satisfaction.
As mentioned above, we recommend defining your North Star metric once you have achieved some level of product market fit. At this stage, retention is only one component for your growth strategy, and you will begin to focus on acquisition.
In order to align all your team efforts for both an effective acquisition and retention strategy for growth, you have to define your North Star Metric.
Need help finding your North Star Metric? If you are working on the new growth strategy of your company, you can apply to work with Cartier Development.
Feel free to ask us any questions on how we help companies from startups to corporates to grow to the next step.