What is a North Star metric?
A North Star metric is the one measurement that is most predictive of a company’s long-term success. To be a “North Star,” a metric must do three things: lead to revenue, show customer value, and track progress.If a metric meets the criteria, the company should grow sustainably if every department improves it.
Why is a North Star metric important?
To have everyone in a company work towards a common objective, teams utilize North Star metrics. Unbelievably, 90% of the world’s data was created in the last few years, which results in endless analytical opportunities, enabling every department, team and even individual to chase their own metrics. This is problematic because, if every team assigns a goal to itself, they will end up working at cross purposes and wasting resources. The author of the phrase “startup investor” Sean Ellis, created a North Star metric with the intention of minimizing administration work, meeting hours, and enhancing productivity by aligning the team towards one singular goal: growth. The North Star lies directly above the Earth’s Northern pole, and this term is to some degree figurative. In a world of complex business models, alongside multiple North Star metrics, any North Star metric is made up of sub metrics. A company could not only survive, but thrive with a single metric of recurring revenue. A North Star metric is an exercise meant to turn complex strategies into simple ones that everyone in a company can remember, comprehend, and act on.
When pyramids were built by Egyptians, the planet had Thuban as the North Star, which has now gone out of alignment. Just like Polaris will eventually do. Companies are allowed to change or amend their North Star metrics as needed, to ensure they are accurate.
Advantages of having a North Star metric
A North Star metric is a measure of output that keeps the company focused in all its pursuits and operations. Essentially, it provides a single metric that serves as a point of focus to ensure that every aspect of the business is catered in a manner that serves its core purpose.
Some benefits of having a north star metric are:
- Alignment Having a North Star metric enables and ensures that a company and all of its employees especially the different teams are working towards the same overarching business objective despite everyone having their own respective sub-goals and metrics.
- Transparency Due to the fact that a North Star metric can be developed from the growth of the company itself, it helps give a level of assurance to all employees concerned regarding the company’s well-being and any foresight powered by fear that comes with it.
- Customer Focus
Your north star metric revolves around the number that best encapsulates the value your business provides to customers. This metric helps you stay focused on optimizing customer experience, which in turn, improves revenue and retention.
By ensuring alignment, transparency, and accountability across the company, your north star serves as fuel to the growth engine. It’s the glue that binds together various individual targets and goals from many different teams towards a singular purpose; the success of your business.
North Star Metric versus The One Metric That Matters
Confusing “The One Metric That Matters” (OMTM) as a North Star metric is quite common because they are often used interchangeably. Unlike OMTM, which is time constrained to two to six months, a north star metric gives long term guidance for analyzing a business.
While keeping projects on track and being time bound can be detrimental, it works wonders alongside north star metrics; when combined, they help foster goals and success in the short term.
How a North Star metric works
In practice, a North Star metric is usually subdivided to each person’s level to take ownership and responsibility on their daily actions. Many of those sub-metrics are actionable and team specific so the individual members are able to see the impact of their actions in context of the North Star.
Consider, for example, an e-commerce company. Its North Star metric is defined as the “number of new customers purchasing each week." A buyer of the company could assist by increasing sales of a particular category that they manage, whereas a web developer would do so through optimizing page load time. They both contribute, just in their own ways. North Star metrics must also capture the customer journey and gauge if users’ journeys are satisfactorily completed. For the case of the e-commerce company, purchases are made by buyers which means that they have completed their journey, and therefore, improving parts of the journey such as discovery, browsing, and checkout accelerates customers€™ getting to the value and earning more revenue.
Examples of North Star metrics
E-commerce
• Number of weekly customers completing their first order
• Value of daily purchases
• Customer lifetime value (CLV)
Consumer tech
• Number of daily active users (DAU)
• Number of messages sent per day
• Retention
B2B SaaS
• Number of trial accounts with over 3 users in their first week
• Percentage year-two retention
• Monthly-recurring revenue (MRR)
Media
• Signups and retention
• Number of daily active visitors
• Total read time
• Total watch time
Fintech
• Total assets under management
• Number of daily active users
How to find your product’s North Star metric
Before creating a North Star metric, companies must make a determination of what is “business critical.” Businesses are multi-faceted and succeed and fail for numerous reasons. But what are the pillars to the business that are, as an architect might say, load-bearing and that would ruin the company if they alone failed (ie — they’re “too big to fail”)?
For many teams, those pillars are ensuring customer satisfaction, profit margins, and results measurement for all of these. A metric that simply makes money without satisfying customers will fail in the long run, as will a company that satisfies customers without being profitable. The insight is …the metric should complement progress and support changes in behavior as a result which relies on the insights from the data collected, and so it is with the Let’s say North Star metric, it must account for all these factors behind the business and some of the more common ways of working backwards from it are. A North Star metric is best defined when all three considerations are taken into account and each reflect the North Star in its business.
• Ask and answer “What is critical for determining if the business can function?” Prioritize a list.
• Inquire "What key performance indicators and metrics capture the most critical factors?"
• Inquire "What metric summarizes all of the mentioned above?"
• Create a metric hierarchy with the pyramid's peak featuring the North Star metric.
North Star metrics, much like seeds, require a nurturing environment in order to grow. For a company to adopt a North Star, they must have appropriate culture alongside infrastructure. Without relationships across silos and a culture that encourages prioritizing the good of the organization over that of individual teams, certain employees might reject the North Star metric. This is especially true when accepting it means changing their behavior drastically or if, as is common for many sales teams, their compensation structure is designed to create a conflict of interest.
Tracking progress over time on your North Star metric requires analytics capability. To monitor progress or attainment of the North Star metric and other accompanying metrics, a company needs the right analytics framework. A company can fail to know whether they are achieving their targets and make necessary adjustments without easy-to-use analytics that teams can access easily. Tracking the North Star metric is considered to be crucial by most teams via product metrics (or user metrics) based analytics. User analytics are more powerful than most, especially free, analytics platforms which typically don’t capture user level insights.
• Track individual users across platforms
• Generate reports and dashboards
• Use machine learning to detect anomalies in the dat
• Offer a user-friendly interface so the whole team can access insights
The interface should be designed in a way that it can be easily used and understood by the entire team.
Every team can understand the context of their individual metrics with the company’s North Star metric and decide if any adjustments are necessary.
Is it possible for a business to have more than one North Star?
In principle, a company should have only one North Star metric. However, this can be overly simplistic for some businesses, such as a company that operates a music streaming service that has core goals of attracting both more music subscribers and paid podcasts. For this reason, we prefer the softer definition of a focus metric that works in addition to other critical metrics.
For additional information on focusing primary metric, check this link.
Finding your guiding star, are you?
North Star metrics is a powerful tool if they are not taken too literally, underpin the culture, and are supported by measurement and analytics that helps tell if they are still guiding the way. A good strategy to achieve that is to align all teams around the North Star metrics goal.
Never forget that your goal is to achieve growth and success, which sometimes requires you to pivot and reconfigure or reevaluate your focus metrics to align with the new objective. With that logic, it’s reasonable to reconsider the decisions you’re making, as it would be unfortunate to be pursuing the wrong star.
