For centuries, people knew that you would never be lost if you could find the North Star in the sky. Polaris, our current North Star, is clearly visible to the naked eye at night and has a stable position in the sky, making it indispensable for navigation. No wonder its name was given to the metric companies use as the key indicator of long-term success. Choosing a north star metric (NSM) is a way to measure company growth and success using only one overarching metric.
North Star metrics are used in multiple companies to measure company progress and help everyone focus on the same goal, thus enhancing communication and collaboration across all teams. But how exactly does that work, and what is this one metric the whole company should use to measure progress? Let's look closer at north star metrics and the benefits you can gain from choosing a single key metric.
The main concept of north star metrics
The north star metric concept was described by Sean Ellis, a startup investor, in 2017, but it emerged even before that. We live in a world of data with multiple metrics that are readily available, which means it is very easy to lose the big picture for your business by using too many metrics or focusing on the wrong leading indicator. When you put a single focus for your entire company on a single metric, it can drive your business growth efficiency sustainably and ensure the company's long-term success.
However, choosing the right north star metric is crucial to ensure future growth and not just save time and money. The perfect north star metric should meet several requirements. First of all, make sure this metric reflects customer value. If you can clearly see the value customers get from your product, you can be sure the value is growing as the north star metric improves. An example of a north star metric that reflects value for customers could be the number of active paid users or daily active users, which is a popular NSM for social media companies like Instagram.
A good north star metric should be useful for evaluation of the company's progress. Just like any other good metric, a north star metric is effective only if you can measure it easily and see how it reflects the company's growth. Weekly active paid users, for example, is a metric that shows growth of the customer base, which means it also reflects progress. Asana uses this north star metric.
Finally, revenue growth should be a result of using a north star metric. It is important here not to actually choose generating revenue in general or even monthly revenue as a north star metric as it is not a good one. Uber uses the number of trips as a north star and this metric is directly related to revenue growth.
Can there be multiple north stars?
Sticking to a single north star metric is not always the best choice. Over time your company's business model could change, for example, you might begin with monthly active users as your north star metric because your company is just a startup and most of your customers don't pay for the service you provide.
At some point though, other goals like acquiring paid accounts and converting free users into paying customers will become more important, which means your north star will no longer reflect your real business objectives and growth strategy. Even though north star metrics are meant to be used long-term, you still need to be vigilant and ready to change your north star if necessary.
Another important aspect of using a north star metric is not to neglect other metrics. Although the north star is a way to make your whole company understand what they should focus on long-term, there are other important indicators. For different teams, the north star metric will not be the only thing that measures company progress on a daily, weekly, or monthly basis. For example, for the customer success team, customer retention will be a leading indicator, and your sales team members should also pay attention to average deal sizes and conversion rates.
You need to ensure that all other metrics your company uses align with the north star metric and impact it positively, adding to its growth efficiency.
North Star metric vs. the One Metric That Matters (OMTM)
One of the terms that most often get confused with the North Star metric is the one metric that matters. However, there are several crucial differences between these two metrics.
First of all, north star metrics, as we have already mentioned, are the long-term goals of your company. An OMTM is typically a leading indicator that you focus on for no longer than half a year to ensure fast growth. Also, even though you might need to change your north star sometimes, it is still a pretty rare occasion. You get a new one metric that matters as soon as you register significant growth on the previous one.
Another difference is the focus span. There can be only one north star metric that you need to keep a company-wide focus on. However, each of your product teams will have their own OMTMs and will change them at different rates according to what indicators need improving at a particular moment. Moreover, certain external factors can play a key role in choosing OMTMs but the north star should not depend on that.
Why do you need North Star metrics?
There are multiple benefits your company gains from having a north star metric. It works wonders for helping you see the big picture, build your growth strategy, and understand how your company progresses on its way to success. Having a common goal that is clearly visible to everyone helps separate teams set better objectives for specific projects and increases motivation because your employees understand how their own work helps the company to succeed.
A well-chosen north star metric is a way to align teams and help them set the right priorities. It is so much easier to drive future growth when all your teams know exactly what to focus on.
The most important thing about having an effective north star metric is that it reflects the customer journey and ensures that your company focuses on the value that customers can get from your product. That leads to better retention and more satisfied customers.
The North Star metric framework
While the north star metric itself is crucial, you need to keep in mind that it is a part of a north star metric framework. Understanding the framework will help your product teams successfully adopt the north star metric.
The north star framework's main element is not even the metric itself, it is your company's customer value and business results that can be sustained over a comparatively long period of time. The north star metric is the indicator of these values, essentially connecting your long-term business growth to customer success.
Another vital part of the framework is a set of factors, typically around five or fewer, that complement the north star metric and impact it most directly. These factors are called the north star inputs. For instance a company that deals with food pickup and delivery may choose the total number of orders delivered on time per month as their north star metric. In this example, the north star inputs will include the number of orders, the number of items in each order, the average order value, and the timely delivery of these orders. Different business models, focusing on paid or free users, will require other inputs, but the main idea is the same: the inputs should reflect the key aspects that directly affect the north star metric.
One more element that is crucial for implementing the north star framework is called ‘the work’. It includes all the tasks and methods in your team's software development, testing, design, and other workflows, connected to the inputs and the NSM itself. The exact techniques used for performing tasks can vary for different product teams but they should all contribute to NSM growth.
How can you check if your North Star is the right one?
Choosing an NSM is a complex process and a lot is at stake. There are certain questions though that you can ask yourself to be more confident that your north star is a good one.
When do the customers get the result from your service or product?
Your north star metric should reflect the customers’ desired end result that is achieved successfully. For a taxi app, it can be getting your car ride booked, for instance.
Is this north star metric applicable to all customers?
It is important to make sure your NSM is connected to the real value that all of your customers can get, not just something your company wants to get. For example, subscription revenue or monthly recurring revenue is not a good north star because it is not directly connected to customer value.
Can we measure this NSM?
Your north star should not be abstract, you have to be able to measure progress easily. It is possible to count daily active users or the number of paid subscriptions, so these metrics can be used to reflect customer satisfaction.
How often is it best to measure the NSM?
Make sure that your north star metric can be used to display company growth over time. It is not enough to just measure something initially, but different frequencies may work for your specific NSM, such as weekly or monthly..
Is the NSM impacted by external factors?
The impact of external factors on your north star metric should be minimal. Only your customers should influence the NSM and not, for example, how much you spend on advertising.
Does the growth of the NSM mean the growth of your business?
If your company growth is not connected to the growth of the selected north star metric, then you might not have selected the right metric.
Can everyone at the company contribute to NSM growth?
Every single product manager or other member of your team should have an impact on the north star metric. It is not a good north star if only some of the workers can contribute.
How frequently does the selected north star change?
Although, as we mentioned, sometimes the north star metric can change, that is not something that should happen all the time. Gather and use customer feedback to adapt but keep the metric consistent over time.
North Star metrics - examples
Now that you know how to choose your north star metric and it is clear why this metric matters, let's look at some more examples of north star metric. Often, if you look at a specific industry, it is possible to single out multiple north star metrics that can work for most companies working in it.
SaaS companies typically choose the number of paid users, customer interactions, or retention as north star metrics, while eCommerce organizations might prefer the monthly number of users who make purchases, percentage of repeat purchases, and customer lifetime value; that is, how much the business earns from an average customer for as long as they keep using the company services.
Some of the largest companies often follow these general principles. For example, LinkedIn's north star metric is monthly active users. Measuring consumption growth is not the first NSM LinkedIn has ever had, but, at some point, it became obvious that the number of endorsements given on the platform is not the metric that reflects customer satisfaction. The number of daily or monthly active users is a pretty common NSM for social media companies.
For streaming companies, the NSMs are different. For example, Netflix focuses on engagement growth so their north star metric is monthly median hours of viewing. Simply checking how many users access the platform every day wouldn't be enough for them to fully understand the level of customer satisfaction. But when people watch the shows longer, it is a clear sign they are happy with the content.
Some companies have very unique north star metrics. One example is Salesforce, one of the biggest CRMs on the market. For them, tracking customer growth wouldn't be the right north star metric because they need their users to interact with the platform by creating new records; for example, of potential leads. The average number of records created is the metric that truly reflects customer value for Salesforce.
Zoom is another company with a unique north star metric. Since most of the customer value for Zoom users comes from video communication, their north star metric of weekly hosted meetings is a great leading indicator of the company's performance.
There are businesses that use multiple NSMs at the same time, like Spotify which has three north star metrics. They include a pretty standard key metric like the number of monthly active users, but also an indicator of engagement, such as podcast listening hours, and also the number of paid subscriptions, which is crucial for monthly recurring revenue.
Conclusion
Having a north star metric is the key to measuring growth and helping your employees focus on what is important for your company's future. It might take some time to determine which north star metric will work for your business model but investing time in choosing the right one will most likely pay off. A good north star metric unites your entire company and guides your employees, ensuring that both your business and customer value grow over time.
