What is the North Star Metric & How to Measure It?

For ages, sailors and travelers used the north star for navigation. Surprisingly, it still helps businesses navigate the ever-changing tech space. Companies use the North star metric and other important KPIs to make sense of the various data discrepancies their enterprises produce.

As the name suggests, the north star metric allows businesses to adjust and readjust their focus on the right thing.

It has become inevitable for the tech world to become data-driven. Whether the data is related to product performance, marketing campaigns, or funnels, there are tons of KPIs used to analyze this data. Thus, product teams have a higher chance of getting overwhelmed and even lost in some cases. That’s where the north star comes to the rescue of product teams from losing direction.

This article talks about the north star metric as a powerful growth tool and why companies should have one. We’ll help you find and choose your north star metric along with techniques to implement it. Moreover, we’ll also look at some interesting examples of how other companies benefit from it.

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What is a North Star Metric?

The north star metric is a vital indicator of a business’s growth. It supplies information about whether or not a company is fulfilling the expectations of its customers and executives. It is also sometimes referred to as the core metric for any business.

Sean Ellis coined the term north star metric. As a growth hacking tool, the north star metric emphasizes long-term sustainable growth. While it emerged from the Silicon Valley startups with rapid growth needs, big corporations are also utilizing this metric.

At best, a north star metric captures the following:

Customer Success
Revenue growth
Team progress

Among other things, a north star metric positively impacts the revenue and customer value – leading to the business’s growth. It also complements your other data metrics or KPIs in practice. It is pretty common for a company to have one north star metric. However, depending on your business, you can have more than one north star metric.

Why the name North Star?

The north star was a reliable navigational tool because of its consistent position in the sky. The means to track location & reach your destination have evolved and been replaced by technology. However, the north star still signifies the symbolic meaning of inspiration, guidance, direction, and finding purpose in life.

Since it acts like a compass to make sense of the company’s direction to drive growth, this core metric is named the north star metric.

Why should you care about the North Star metric and how it impacts growth?

CB Insights highlights the top 12 reasons startups fail after post-mortems of more than 100 failures. The findings describe a pattern related to issues such as lack of focus, disharmony among teams & investors, and more. While there are other reasons for failure, all companies can learn a thing or two to establish a north star.

Below are three reasons companies (new or established) can benefit from the north star metric.

Clarity of focus

Companies can use the north star metric to define goals and align their teams. North star metric provides transparency about what’s essential for a company among all the stakeholders.

Thus, all the teams in a business, be it development, marketing, sales, and support, can connect their team goals with the north star metric. It sets the company’s direction to follow while ensuring everyone is on board.

Customer success

Customer success is an excellent measure of a business’s growth. With the north star metric in place, companies can see how their team’s efforts are adding up to enhancing customer experience. Improved customer experience leads to customer retention and increases bottom-line revenue.

Accountability

A north star metric can provide everyone in the company with information about how the business is performing. Employees can see how their efforts are contributing to the company’s growth. It also helps them feel accountable for their actions, promoting a sense of responsibility. The north star metric leads to employee ownership and helps in retention.

How to find & choose your North Star metric

Coming up with your north star metric can take time and effort. Companies are intricate, and many factors determine their success and failure. Discovering the north star metric might be accessible in some cases but difficult in others.

The north star metric must be measurable and actionable. One rule of thumb is to identify a business’s essential pillars for its survival. A north star metric revolves around customer success and business growth. As a company can’t survive by making money without customer satisfaction, delivering customer satisfaction without making money is impossible.

And customer and business success are possible long-term if both are linked to the employees’ success. A north star metric is as effective as the company’s environment.

Look at the following checklist to choose your north star metric.

Define your customer’s success moment

Every product delivers something to its users that can translate into a core metric. In other words, the core metric is the promise of a business to its customers. Your product may deliver on the promise in multiple ways. But look for a single metric as the number one reason your customers adopt your product or service.

When hunting for your north star metric, define what result or value your product delivers. Ask yourself, what is the one thing your customers want to achieve with your product? The answer is your customer success moment.

Measure your customer’s success moment

After defining customer success for your business, see how you can measure it. The customer success moment you specify in the first step equals your north star metric. And for your north star metric to be measurable, the success moment has to be measurable.

Customer satisfaction does sound like an intangible concept, but you can always measure it.

For instance, look at the north star metric for the famous meditation and mindfulness app, Calm. It’s hard to think how this app measures customer success since meditation and mindfulness are subjective experiences and depend significantly on the practicing person. But Calm uses customer lifetime value (LTV) and customer acquisition cost (CAC) as its two north-star metrics. LTV tells about the buyer’s success as those who receive value from the app will stay longer. And CAC informs about how the brand’s efforts are converting new customers. Both LTV and CAC exhibit the brand’s growth and customer success.

North Star metric provides value to your customers

In addition to being measurable, your core metric shall reflect customer value. If the north star metric fails to reflect the value your product or service delivers to your customers, you might be a victim of the vanity metric. Vanity metrics make you look good but at the cost of valuable insights to measure your performance.

One such core metric is revenue. It is not a suitable north star metric because of the following reasons:

It is a lagging indicator that keeps you from peeking into the future.
It is hard to link revenue with business operations and employee performance as it can be inconsistent.
It focuses more on what your business gets from conversion than what your customers receive.
It could be more exciting since your product team needs to gain insights into how the product is delivering value to customers. They might only be able to improve the product further with the right metric. Also, by focusing on just sales, you cannot see the impact of the product team’s effort on the north star metric.

A quote by Ward Van Gasteren states the idea mentioned above very accurately as follows.

“Revenue is the price your customer pays. North star metric is the value your customer gets in return for that price.” – Ward van Gasteren, Growth Hacking Coach.

Have control over the North Star metric

The north star metric has to be time-bound to see its impact on your bottom line. It means measuring the north star metric based on a period like monthly, weekly, or daily. This approach helps you see your company’s growth over a period of time. It also allows you to reflect on the performance of your business in relation to external events.

Your north star metric should not be directly linked with factors outside your control other than your customers. For it to truly represent the relation between your product and customers, the north star metric should be able to endure minimum impact from external factors.

North Star Metric reflects your business growth

A north star metric is versatile in measuring your business’s growth. No matter the angle you choose to look at, the north star metric points you in the right direction. i.e., business growth. This feature of the north star metric also acts as a countercheck to see if you have started with the right north star metric.

Consider an eCommerce business that chooses the number of orders placed in a month as their north star metric. It needs to reflect the customer success moment when customers complain about the purchased products. Customer purchase is a revenue boost but fails to portray customer success. Since the two are directly proportional in an ideal growth relationship.

An all-inclusive north metric for an eCommerce business could be the number of orders placed without complaint. Or it can be the number of repeat orders placed (assuming you have a product with a short consumption period). Remember choosing the wrong north star metric can harm your brand. It can make your business rely on information different from reality.

All the teams have an impact on the North Star metric

Another essential characteristic of the north star metric is that it reflects everyone’s effort in the company’s growth. No matter the team, their efforts add up to the core metric. The north star metric is as good as the sub-metrics it’s based on.

North Star Metric is flexible

The north star metric does not change frequently, but it is not set in stone. However, it should adapt to the feedback associated with customer activity happening regularly.

For instance, your north star metric of monthly active users (MAU) performs well. But the data analytics show that over 70% of the MAUs are free plan users. You should focus on paid conversions and fill the gap of lagging on customer acquisition goals. Changing your NSM to meet your company objectives makes sense in such a scenario.

What are some examples of Good North Star Metrics?

The best-performing companies use north star metrics to understand progress in one of five areas:

Growth efficiency
Customer acquisition
Custom action
Usage
User experience

Below are the north star metrics from famous companies. It’ll help you connect the dots in choosing your north star metric.

LinkedIn’s north star metric is ‘monthly active users. It works because, unlike other social platforms, it helps them identify user satisfaction with the platform. LinkedIn focuses on consumption growth in terms of monthly or daily active users. Based on the metric, they can dig deeper into the issues by tracking sub-metrics.

Read More: Perfect LinkedIn Content Strategy

Airbnb

‘Nights booked’ is Airbnb’s north star metric. The number of booked nights indicates their customer’s success and business growth. The better the customer experience, the more nights customers book, and the more money the business makes.

Jira

Jira has ‘weekly active paid users’ as their north star metric. It reflects t
hat the company’s growth is directly related to the number of active users with a paid plan. Since it is a customer support tool, it’s only valuable as long as customers use it. Therefore, Jira focuses on paid active users as they will likely stick with the product long-term.

Dropbox

Dropbox is an excellent example of a B2B north star metric. Its north star metric is ‘teams using dropbox business.’ This metric captures the value of the product for its users. Dropbox shifted focus from monthly active users (early stage metric) to business accounts (because it is now at the established product stage).

Implement North Star Metric to complement product strategy

You need to keep track of your north star metric more than choosing it. The north star metric drives developments in your product strategy. It is possible if all teams align to work for a common goal. Businesses must invest in experimenting to see what brings better performance.

Here’s what you can do to implement the north star metric:

Analyze the existing product engagement of your customers.
Ask what is working and why? Do the same for things that need to be fixed. Try to understand which customer segments convert easily, how long they stay, and why their conversion rate is higher than other segments.
Use this information to optimize customer acquisition and streamline your onboarding process.
Try A/B testing to see how users respond to personalized onboarding.
Measure your crucial product metrics such as LTV, CAC, etc., and how they impact your north star metric.
Adapt the whole process to match your business needs and objectives.

Move Your North Star Metric with Product Analytics

Tie your north star metric with product analytics to gain solid insights. Consequently, you can visualize its relation with other key performance indicators and how they impact the company’s core metric.

Use data analytics platforms like Usermaven to monitor product KPIs. It is a robust product analytics tool that helps you keep track of your north star metric. You can track key metrics like DAU, WAU, MAU, and more. With features for different customer journey stages, Usermaven offers actionable insights for supercharging your customer experience.

Make it a part of your tech stack to measure user engagement and maximize customer success.