A North Star metric is essential to look into if you want your company to reach its maximum growth potential.
Although many organizations have identified a north star metric, only a few are utilising it as they should. As per the definition given by Steve Blank, your company will never reach its full potential unless you’re using it to measure whatever’s driving growth in your organisation.
Retaining customers is crucial because it allows you to gain ambassadors who will turn your marketing into a self-perpetuating marketing machine. It is, however, critical to place the concept of the ‘north star metric’ at the heart of your growth hacking strategy. Having identified your north star metric, you’ll be able to track the growth rate of any feature.
Companies like Zappos, Amazon and Netflix depend on the North start Metrics for all their calculations; this shows the importance of the north star metric. The more data you collect through your project, the better you’ll understand what works and what doesn’t.
In essence, organisations with a clear understanding of their north star metrics are more likely to attain long-term growth.
What is the north star metric?
Although there are several definitions and explanations of what a north star metric is, Steve Blank’s description seems to be the most appropriate because it explains how you can determine whether or not your firm has one. He says that ‘a north star metric is a single, quantifiable metric used to drive decision-making. It helps’ organisations prioritise, allow organisations, optimise processes, and become data-driven. ‘
Steve Blank insists that the north star metric should be quantifiable. This means that there must be an exact number associated with the results of whatever you are measuring. For instance, if your goal is to increase the number of customer acquisitions, you’d better have a good grasp on the exact number of customers you need to acquire.
The North Star metric plays a significant role in determining your growth rate. It is also crucial to track how much money (or time) you put into any distribution channel (e.g., spending $X to get customers).
Examples of North Star Metrics:
Spotify is an abbreviation for ‘Time Spent Listening.’
Airbnb = ‘Number of nights reserved.’
‘Monthly active users on Facebook
Once you’ve identified your north star metric, you can start measuring your progress and steer the course of action you’re taking towards achieving optimal results.
This will allow you to determine which distribution channels are most efficient at generating the desired result.
Why is your North Star Metric important?
The North Star metric has a lot of positive effects on an organisation. For instance, it clearly indicates that the organisation knows what it wants to achieve, making decision-making processes so much easier.
The North Star metric also helps you measure your progress-something that is very important when starting a new business since you’ll have limited resources at your disposal.
Another benefit of having an established north star metric in place is that it prioritises your activities. Since the north star metric is essential for measuring the potential of your business, you’ll have to keep focusing on it.
Knowing what’s going on and having a clear view of all the progress made allows you to adjust your actions accordingly to maximise results. This means that adjusting will be easier when you have a north star metric to figure out the optimal path towards growth.
Why revenue should never be your north star metric.
Several successful businesses rely on revenue as their north star metric. It offers salesperson business owners who want to focus on the goal they have set.
However, there is no denying that relying solely on revenue can be detrimental to your business in the long run. There are several reasons why this might happen:
- There’s a thin line between focusing on your revenue and concentrating on the costs you incur to generate it. Unfortunately, this means that if you begin to focus too much on saving money, you’ll eventually cut corners.
- Revenue doesn’t provide any information about how (and what) to improve to increase future income. Reduced clarity puts more pressure on the revenue metric to be responsible for making any improvements.
- The north star metric shouldn’t be a lagging indicator. In other words, it should indicate that you are meeting your goals and generating progress as opposed to being an afterthought. Revenue can’t do this; it’s too late by then! It may show that you have reached your target at a certain point, but it may or may not indicate future performance.
- A business that relies solely on revenue is vulnerable to disruption by competitors who offer similar products for less.
Here’s why you should never rely solely on revenue figures:
In 2012, Groupon was the fastest-growing company in history. Groupon had the goal of reaching $1 Billion in sales by the end of 2012.
Unfortunately, things didn’t go as planned. Groupon reported a decline in its earnings instead (http://www.businessinsider.co. Item/Groupon-earnings-2012-4).
Groupon’s revenues weren’t declining because the company was losing customers. On the contrary, more and more people were buying Groupons. The problem was that this growth came at a price. The increase in sales meant a rise in marketing costs, customer service costs, administrative expenses, etc. In the end, it was all the additional expenses that ended up hurting Groupon’s bottom line.
There might be several reasons why this happened, but I believe one of the main ones is that Groupon didn’t plan growth (in terms of revenue) properly. As a result, there weren’t any measures to ensure that an increase in sales wouldn’t come at the cost of other, more meaningful metrics. Instead, Groupon focused all efforts on reaching the revenue north star metric-and that backfired.
Why should you replace the revenue with customer conversion rate as your north star metric?
Revenue is a lagging indicator-it’s not actionable. This means that it can tell you that you’ve reached your target, but it doesn’t tell you what to do next.
On the other hand, it is a leading indicator-it does tell you what to do next!
Let’s look at an example of how this works:
Your business sells dog leashes and recently started using Facebook ads. Your ads had solid click-through rates but weren’t generating a lot of sales. After spending more money on the ads and improving their quality, the number of ad clicks went up, but so did the price per ad click. Higher CTR but low conversion means that although you are getting more people to visit your website, they aren’t converting or buying anything. Low conversion is a clear sign that you need to start optimising your website. You might consider adding an “add to cart” button, for instance, or changing the page’s layout so users can easily find what they are looking for.
What is the difference between your North Star Metric and One Metric That Matters (OMTM)?
The main difference between these two metrics is that the north star metric should be a long-term goal and can’t change much to maintain focus.
The OMTM, on the other hand, can be changed more frequently because it’s more of an intermediate goal. The idea behind this is that you first reach your North Star Metric and then track your progress through the OMTM.
Another distinction is that the North Star Metric is one that your entire company should focus on to maintain long-term growth, whereas OMTMT is a metric that only one team focuses on.
Let’s dig deeper into this:
Size: The North Star metric is a metric that your entire company needs to focus on. For example, if your north star metric increases the number of leads you generate per salesperson, all teams need to focus on it. If one team’s actions negatively impact the numbers generated by other groups, it will affect the company.
The OMTM, on the other hand, is a smaller project that only one team should focus on- for instance, the team that is responsible for driving sales. Other groups are still free to pursue their own goals.
Size isn’t just about your company’s size, though-it also relates to the fact that you should keep north star metrics at the same level of abstraction throughout all levels of your organisation. At the same time, OMTM can change depending on the appropriate level. So, for example, the OMTM could increase sales by 10% in a specific region for one department, and for another department, it might be to achieve the same goal in a different area.
Time: A North-star metric is a long-term approach. It should be kept the same for an extended period to help your organisation focus on one thing. Focusing on a long term approach is why you don’t want it to change.
The OMTM, on the other hand, can and should often change to help make sure that your team stays focused. For example:
“Since we are currently focusing on growing our San Francisco sales team, the OMTM will be to increase sales by 10% in that region.”
Another example could be:
“Since we recently hired a new VP of Sales, the OMTM will be to bring the total revenue up by 10% this year.”
Because it can change often, it shouldn’t be a long-term metric.:
How: The North Star Metric has two parts: 1) an overarching goal that your company needs to focus on for the long-term 2) a metric that indicates if your business is making progress. This means it could be something like “increase revenue by 20% by the end of the year” or “generate 100 leads per salesperson.”
The OMTM also has two parts: 1) a goal related to one team, and 2) a metric that determines if they are making progress towards their goal. This means it could be something like “grow our San Francisco office sales by 10% in the next quarter” or “generate 200 leads per salesperson.”
To create a north star metric, you can use an existing one if it’s very relevant and many successful actions have been taken. However, if you want to develop your own new north star metric, ask yourself: What do we need to focus on the most? Or: What is our biggest bottleneck?
You’ll have to analyse a lot of data and take a close look at what’s going wrong with your company.
How to measure your north start metric
There are several steps to finding excellent North-star metrics for your company.
It starts when your customers reach their end-point.
It begins with determining how your customers arrive at your result (a solution to their problem, a feeling of excitement-such as a like or comment on their post or a click on your ad, for example). Then, it progresses to a full range of activities that affect your company’s bottom line by determining all actions taken on the way to customers’ goals.
Your end-point should be in line with your goals.
You want to make sure that when you are working towards your end-point, you are contributing to the long-term success of your company. Therefore, a good north star metric should relate directly to a business objective.
A good north star metric is aligned with value.
In other words, it is a measurable result that creates value for the customer.
KPIs such as “Daily Active Users” and “Registered Users” are useless.
They measure how many people use your product, but they don’t tell you whether or not the user base is sticky or if it’s growing.
An excellent. In that case, an example of a North Star metric that correlates with value would be “User Retention” or “Customer Lifetime Value.”
Let’s say your product is a video sharing website.
Suppose you have an email list of people who visit your site every day. Constantly seeing videos that make them want to share them with their friends and family (user retention), and those users keep coming back for more videos (customer lifetime value). Thus, the North Star metric is “User Retention.”
Is your North Star Metric Measureable?
You want to make sure your North Star Metric is quantifiable.
It should be a number that you can track and evaluate.
Metrics like “customer satisfaction” are examples of unmeasurable NS Metrics. You want to be able to track your North Star metric in an easy, simple way.
For example, finding out the number of times your followers liked your Facebook page post could effectively measure the North Star metric for some companies.
A good North Start Metric is SMART.
Specific: You want to define your north star based on particular actions or events that are quantifiable (such as “email sign-ups” or “daily visits to our blog”).
Measurable: This means it’s not something you can’t track. We want to measure what we’re doing by the end of each quarter/week.
Measurability means that your north star metric is actionable in that it allows for the data collected from previous quarters or weeks to be used as input for the following goals.
Relevant: Your north star metric should be relevant to your goals. In other words, it’s not just a vanity metric like page views or the number of users-this is different from actionable metrics. You want to make sure your North Star Metric relates directly to business objectives and (eventually) making money.
Timely: You want your metrics to be collected regularly to give you the most relevant data. The frequency with which you collect the North Star Metric depends on how quickly your team can implement results based on the new data. For example, if you measure user engagement and it takes
A North Star metric should be evident to everyone.
This way, it can help create a shared vision for your team and customers, making everyone work towards one thing.
LinkedIn North Star Metric
Initially, LinkedIn’s North Star Metric was “Number of Endorsements given”. This made a turn for the better.
Why?
They found that more people were adding endorsements to their profiles at the expense of viewing and accepting invitations.
This falsification of endorsements gave recruiters misleading information, so this NSM did not improve businesses. It would not mean an increase in daily activity.
Therefore, they switched their North Star metric from “Number of Endorsements” to “Monthly Active Users,” which was Facebook’s NSM.
This is a good example of where LinkedIn’s north star metric has changed-but LinkedIn did it so with the interests of users and the company in mind.
Airbnb North Star Metric
Airbnb’s north star metric is “Guest nights booked.”
They are trying to improve their ability to create a place for people who want a unique and memorable experience.
Their north star measures how many times per month their guests stay in one of the places listed on the site.
This goal makes sense as it allows them to see how much money they are making from their site metrics.
It also enables them to see if visitors are sticking around and potentially book for the long term.
Uber North Star Metric is “Number of Trips taken.”
Given that Uber’s North Star metric is “Rides per week,” it follows that the easiest way to increase your revenues is by increasing the number of rides you deliver.
Whatsapp’s North Star Metric
is “Chats sent and received.”
WhatsApp is a messenger app, so it makes sense for their NSM to be based on chats. This way, they can measure that people are using the app more frequently.
Quora’s North Star Metrics
“Number of questions answered.”
Quora’s NSM is quantifiable and relevant. This means they can track how many of their users are answering questions on the platform.
Again, it is also a relevant metric that can help them determine if the question-and-answer platform is achieving their goals in the way they want it to.
Summary
In summary, a good North Star Metrics has eight attributes: 1) Measures Customer Value, 2) Measurable, 3) Visible to everyone, 4) Actionable, 5) Relevant to Goal, 6) Contextual to Business 7) Flexible 8) Aligned with the overall business strategy.
What is the purpose of your business? Is it to “create a product that people love,” or is it something else? Without a clear and well-defined purpose, your organisation will likely have difficulty understanding what metrics are most important. As you identify the right metrics for your business, make sure they provide the best possible information.
Whether you are a startup or an enterprise business, analytics is not an afterthought. The data you generate from your business can make crucial decisions that will drive business growth in the future.
That’s why making sure you have a good North Star Metric is so essential indicate.
If you have any ideas or suggestions, please leave them in the comments below!
Question 1: Should a company only have one product, North Star?
The North Star Metric should be specific to the product or service that it is designed to measure. For example, if a company is launching a customer service app, their north star metric should be focused on measuring “customer satisfaction.” If a company has ten business units related to different products or services, each team has its own north star metric.
The answer to this question depends on the ecosystem of the business as well as its complexity.
Question 2: What are the most common pitfalls to devising a north star metric?
The North Star Metric will be as good as the people designing and using it as a strategy for measuring your organisation.
It is easy to see how metrics can get complicated if you do not define them properly. A common pitfall is that implementation becomes confusing without limiting clear lines of accountability or ownership, and people will begin to neglect them. A trap like this can confuse what is essential for your company, which leads to the next pitfall:
Many companies get tempted to look at too many metrics to get clarity on their objectives. For example, a retail chain may measure customers’ contentment. Then they’ll look at data like revenue, traffic, and brand sales. Too many metrics as a north star or supporting measure may make it difficult (if not impossible) to identify what is essential in the company.
Another frequent mistake is forgetting why you chose a specific metric as your north star. A situation like this occurs when a metric becomes excessively stagnant. For example, if a metric is down but still within acceptable bounds, you may believe your business is doing well despite the trend. In situations like these, it’s critical to recall why you chose the NSM in the first place.
Measurement is a necessary evil in business; that’s why it’s so important to get it right from day 1. A clear north star metric will help you ensure that all your stakeholders are pointing their efforts towards working towards the same goal and avoid getting distracted by other short-term wins.