A common misconception about a company’s growth is that it can be measured by the number of new customers going through the door. However, this isn’t always the case. Other options and metrics prove much more helpful to measure in growing your business in the long run rather than just instant popularity. So many metrics help to grow. Isn’t it kind of confusing focusing on all metrics. And Yes, that’s why you should concentrate on one metric, which is a leading indicator for the company’s growth, one metric that drives growth for the long term. It is called the North Star Metric(NSM)
What is a North Star Metric?
A North Star Metric (NSM) is the one number that’s most predictive of a company’s long-term success. A “North Star” is different from other key performance indicators. It must measure three things: lead to revenue, reflect customer value, and measure progress. If a company can create one North Star Metric that accounts for these three factors and if every department contributes to improving this singular metric. It will grow sustainably over the long term compared to its competitors.
The North Star Metric (NSM) is a leading indicator of its growth and direction. This number best reflects the monetary values that your company brings to your customers and the long-term growth versus the short-term boost.
The idea behind the North Star Metric is that if your company brings a lot of value to your customers, your growth will be positive. The assumption about the North Star Metric is that if your customers receive the value for what they are paying, they frequently purchase more and refer their friends and family. Eventually, you’ll have a successful business. Here the value you provide is the “North Star Metric.”
Here are some of the north star metrics examples for well-known companies:
- Airbnb, a bed and breakfast company’s North Star Metric, is the “number of nights booked.”
- Zoom, a communication tool’s North Star Metric, is the number of “weekly hosted meetings.”
- Uber, a raid hailing platform’s North Star Metric, is “rides per week.”
- Spotify’s North Star Metric is “time spent in listening.”
Why is the North Star Metric important?
Growth has become a significant preoccupation of companies over the last decade. Some many different applications and strategies that can be used to bring change that I’ll describe in another article. But first, let’s take a look at choosing the right metric—which will probably be your “north star metric”.
In short, choosing a powerful mountain-top metric allows you to grow long-term whilst remaining profitable and leveraging your services, rather than falling into an unbalanced trap of only trying to achieve quick influxes of capital whilst neglecting actual costs for replacing ineffective campaigns. By keeping this in mind and taking time to read our example, you’ll hopefully have all the answers you need!
So, for a business to grow, it’s essential to focus on its North Star Metric, and your business grows in every respect when your North Star Metric consistently increases.
What are the benefits of having North Star Metric?
Your team should be a single unit working together to achieve the same goals. They may focus on different areas, but they’re still playing their part within a larger scheme of things.
- Brings Focus: Your company will have the same common goal. Your team should be a single unit working together to achieve the same goals. They may focus on different areas, but they’re still playing their part within a larger scheme of things to achieve NSM.
- Brings Clarity: Since NSM is the only metric that every team focuses on, they can see how well the company is doing. It also gives your organisation clarity and alignment on what the product team needs to optimise and what can be traded off.
- Customer Focus: A customer-oriented focus will ensure that the customers feel compelled to stick around if you provide value to what they are paying. SO, it also gives you time to devote to retaining customers with their needs in mind. In other words, the company sees value in keeping existing customers, so you can spend your time on retaining current clients.
- Accountability: Most importantly, it holds the team accountable for a desirable and measurable outcome
The result will be a business grows effectively in the long run. Because you have clarified your metrics and your employees know where they stand and what is expected of them.
What is the difference between your North Star Metric (NSM) versus One Metric That Matters (OMTM)?
A North Star metric is broken down into smaller metrics that drive accountability and ownership at the individual level in daily use. Many sub-metrics are team-specific and actionable, so individual contributors can connect their daily duties and the North Star. Take, for example, an e-commerce company with the North Star metric “the number of new customers purchasing each week.” A merchandise buyer at that company could contribute to that parent goal by increasing sales in their category. In contrast, a web developer would contribute by reducing page load time. Both contribute, but in their way. Here each person’s goal is called One Metric That Matters (OMTM)
North Star metrics shouldn’t be confused with OMTM, a term popularised by the authors of “Lean Analytics.” They’re two very different items. OMTM is most commonly described as “one metric that matters right”, and it’s meant as a short-term solution. In contrast, North Star metrics are long-term guidelines on the direction an organisation takes. Businesses should feel free to reevaluate their OMTM and amend them if they prove flawed when helpful. The core difference between the definition of North Star Metric and One Metric That Matters is that North Star Metric is the quintessential driving force in your company. It helps you gain more overall value over a more extended period – to infinity. Whereas One Metric That Matters (OMTM) is your company’s chosen goal or objective and for a shorter period. During this 2 to 6 month period, teams are encouraged to concentrate on achieving that OMTM to achieve long term growth for your startup.
The three significant differences between North Star Metric (NSM) and One Metric That Matters (OMTM):
For whom it is intended to: The North Star Metric is for all the departments. However, The One Metric That Matters should be used by a single department and would be more appropriate as one team working towards the same end.
The duration for which this metric is used: The North Star Metric measures how your business growth is tracked in the long term. The One Metric That Matters, on the other hand, is more project-based and relatively short-term. It’s meant to help you get an overview of essential data that can be analysed over time to lead you to make the best decisions about what areas to focus on.
Purpose of each metric & the ratio between the two metrics: One Metric That Matters (OMTM) is a critical backbone to the teams. This way, each team can choose OMTM to help them constantly improve upon their primary goal as a group. So not only does the OMTM help each team set goals and achieve them more effectively. But it subsequently allows teams more leeway in determining what they can do best. Then it can then promote overall improvement on the North Star Metric that they began with at the onset of each project.
So, in a nutshell, North Star Metric (NSM) is a subset of One Metric That Matters (OMTM)
How to build a North Star Metric?
A good North Star Metric should meet these 7 criteria. Otherwise, it can go wrong quickly:
- When does your customer reach the end goal? Your North Star Metric equals your customer’s ‘success’ moments. If you do it right, your North Star Metric is close to the moment the customer gets its intended result from your product/service. For Instagram, that moment is when you feel heard (either because someone liked or commented on your post) or entertained (typically engaged with other users’ posts). For Dropbox, the user can quickly put their pictures – along with anything else for that matter! – in the cloud to be accessible from anywhere on any device. For Airbnb, the end goal is when someone has booked a trip for customers, and the host end goal is when their apartment is booked.
- Is your North Start Metric (NSM) measurable? Your North Star Metric should be measurable. Things like ‘customer satisfaction’ or ‘degree of unburdening’ are not measurable. You should measure the number of times a specific action is carried out, no. of orders received in a particular time frame or the time taken for the user to complete an action.
- Is your North Start Metric (NSM) time-bound? With any good product, it’s always essential to ensure that your metrics are relevant. To measure a successful North Star Metric, you typically consider the timeframe such as hour, day, week or month. This way, you can see if you’re growing at a steady rate over time, making it easier to determine if what you’ve been endeavouring is leading up to success or not. Rather than using an irrelevant amount of time – say an entire year – I recommend reporting on month-to-month increments. So that you can consistently monitor your growth without having to wait a full 12 months every time before checking in on your company’s status.
- Do external factors influence your North Start Metric (NSM)? A good North Star Metric should not be influenced by other external factors besides your customers. For example, if you own a travel company, you don’t want your north start metric to be something that doesn’t rely strongly on the experience with your brand. So, for instance, “the number of 5-star journeys per month” is not a good north star. Because as a travel organisation, it may not reflect how much of an impact you’re having on things like weather, flight delays, or the local people’s mood during those months.
- Does your pirate funnel (AAARRR) impact your North Start Metric (NSM)? A North Star Metric should be influenced by everyone in the organisation. It shouldn’t matter on what phase of the Pirate funnel they are working on. Everyone should feel that they are involved and contributing to the common goal. On the other head, your North Star Metric should also influence the different phases of the funnel. For example, in an e-commerce company, if you have “the number of packages delivered” as a North Star Metric, then that Revenue phase of the funnel should increase. Similarly, if you gain more brand awareness with more orders, your referral phase of the funnel goes up.
- Is your North Start Metric (NSM) reflect the growth of your company? Your North Star Metric should be directly connected to your growth on a daily/weekly basis. And as you’re taking care of the metrics that keep your business growing and thriving, it’s important not to allow unnecessary or vanity metrics to carry too much weight. Let’s assume that you consider one of the vanity metrics as North Star Metric. It might have grown significantly, but revenue remained the same. Then the metric itself is wrong to measure. For, e.g., for a lab-diagnostics company, no. of report downloaded is a bad and dangerous metric. Because a customer might download, report twice or thrice.
- Does your North Star Metric (NSM) provide value to the customer? A good North Star Metric means you don’t just keep an eye on your marketing KPIs but also the different Pirate Funnel Metrics like retention or referral. The most important thing you can do is that you are always providing your customers with value. For example, North Star Metric, like “the number of orders made”, is far too focused on your marketing KPIs rather than customer satisfaction. You may convert more orders. What if the customer is not satisfied with the delivery or service. Referral funnel breaks here. So, a good North Star Metric would be the “total number of orders delivered without any complaints.”
What are some wrong North Star Metrics (NSM)?
Revenue is of the dangerous North Star Metrics. The #1 reason why revenue should not be your north star metric is, “Revenue is the price that you’re charging, rather than the value that a customer gets for it.” The danger of revenue as a business’s North Star Metric is that it could lead the company to focus primarily on extracting money from customers in pursuit of reaching revenue targets. With no genuine regard for retention or referral.
No. of downloads is another dangerous North Star Metric. A user might download multiple times in a particular time frame due to various reasons.
What are good examples of North Star Metrics (NSM)?
I will help you fill your recipe book quickly. Here are some examples to get you started. So, here are a few examples of North Star Metrics for a few of the large and well-known companies. This list might inspire you to identify your actual North Star Metric.
What is Facebook’s North Star Metric?
Since its inception, Mark Zuckerberg has used “Monthly Active Users” (MAU) as a North Star Metric. Facebook’s North Star Metric has been subject to much confusion. This is because Facebook is such a versatile platform that it was difficult for them to be more specific about which metric would work best for them. Many growth marketers believed that Facebook was too vague with focusing on MAUs.
People often confuse Facebook’s north star metric with their “aha! moment”. Their “aha! moment comes from “7 friends in 10 days.” The aha moment denotes when a user becomes aware of why they should be using the platform. At the same time, the north star metric is simply monthly or daily active users.
What is Spotify’s North Star Metric?
According to Spotify’s Head of Growth, Mayur Gupta, in one of the interviews he mentioned, the company’s North Star Metric is “Time spent listening.”
If you think about it here, their NSM measures the value customers experience from each playback by how long they listen. Change in pirate funnel influence the NSM and vice-versa. There aren’t many external variables that influence “time spent listening.”
What is LinkedIn’s North Star Metric?
LinkedIn’s North Star Metric was formerly “Number of endorsements given.” It proved that users were building relationships with one another, which meant they weren’t as likely to delete or abandon their old profiles. Because “Number of endorsements” held so much value. It also proved valuable for recruiters because they received more insight into a person’s reputation through the platform.
Unfortunately, they soon discovered that the endorsements garnered for the LinkedIn platform were fabricated, and this NSM would not drive growth as they had anticipated. Eventually, after the takeover by Microsoft, LinkedIn chose to use Facebook’s NSM as an example and started using ‘monthly active users. (MAU)’ as their North Star Metric.
What is Amazon’s North Star Metric?
Amazon has the “number of purchases per month” as their North Star Metric. This example is a classic example for an eCommerce North Star Metric. They believe that the number of purchases its customers make per month gives them a good indication of how financially successful they are. This information lets Amazon focus on making sure they have quality products available to consumers. That will increase the number of repeat customers they have.
What is AirBnB’s North Star Metric?
AirBnB’s North Star Metric is “Number of nights booked” because it ties in perfectly with the importance of both parties: those who are booking and those for whom the space is being reserved. The number of nights booked correlates with the value a customer receives from a good experience using Airbnb. On the other end, it also correlates with a host’s value from getting a space booked. Here both customer and host receive value from North Star Metric.
What is WhatsApp’s North Star Metric?
The Whatsapp North Star Metric is “Number of messages send.” Many might think that No. of active users might be North Star Metric, But it is not. Here the value derives from the user sending messages across the platform.
What is Hubspot’s North Star Metric?
In the podcast with Intercom, Kieran Flanagan (VP, Growth) talked about Hubspot’s North Star Metric, which he stated is “the number of weekly active teams.” Because they are focused more so on how people work together rather than individuals. HubSpot CRM is famous for its unified suite of applications that allows businesses to monitor customer interactions more effectively. So, the NSM of “the number of weekly active teams.” makes more sense.
What is Uber’s North Star Metric?
Uber’s North Star Metric is “Rides per week”, as this corresponds to the NSM of Airbnb. This multi-sided platform results in increased transactions for both parties. In the case of Uber, it’s between riders and drivers. Both riders and drivers receive value from their NSM. Here the driver is getting paid. The rider gets to their destination.
What is Netflix’s North Star Metric?
Netflix’s North Star Metric is “% of new users who add at least three titles to their queue during their very first session with the service.” In my opinion, this is one of the best customer-centric North Star Metric. Using this metric, Netflix’s team delivered a unique customer experience followed by the best product out there in the market.
What is Quora’s North Star Metric?
As a North Star Metric, Quora’s NSM is “Number of questions answered”, visualising how Quora shares knowledge for free on its global platform. Interestingly, Quora has a mission of “sharing knowledge globally”, which aligns with their NSM.
What is Slack’s North Star Metric?
The mission of Slack is to keep teams organised. So its NSM is “messages sent within the organisation”. Slack’s mission is to build a better employee experience and help teams manage. Its vision is to replace emails and improve collaboration. So there cannot be better NSM than “messages sent within the organisation.”
What is Intercom’s North Star Metric?
Intercom’s North Start Metric is “No. of customer interactions”. Intercom is one of the most innovative B2B startups, in my opinion. This cloud-based solution allows 30,000+ businesses to communicate with their customers in various ways, including email and social media. One of the best parts about Intercom is that it bridges the gap between improving customer communication and managing customer sales journeys. So, having “No. of customer interactions.” as NSM makes perfect sense.
What is Salesforce’s North Star Metric?
Salesforce’s North Star Metric is the “number of records created”. Salesforce is one of the pioneers in enterprise software and has been around for ages. It’s no wonder why 1,00,000+ enterprise customers trust it to help manage their businesses more efficiently.
What is Zoom’s North Star Metric?
Zoom’s NSM is the “No. of weekly meetings” occurring within teams using their platform. The more meetings happen –, the more value customers and business owners receive from using the communication tool.
What is DocuSign’s North Star Metric?
Docusign NSM is “No. of Signed Envelops.” DocuSign business focuses on online digital signature. Their customers derive value from using their digital signature feature.