north-star-metric

North Star Metric In A Nutshell

  • A north star metric is any metric a company focuses on to achieve long-term growth. To be sustainable, this metric must be related to delivering customer value.
  • A north star metric has two vital components. It must include a product vision statement and a metric serving as a key measure of the current product strategy.
  • A north star metric should reflect the engagement level of the user and be clearly understood on the organizational level. It should also evolve as the company evolves to ensure that the business remains competitive.
AspectExplanation
DefinitionThe North Star Metric is a single key performance indicator (KPI) that represents the core value delivered by a product or service to its customers. It serves as a guiding metric for businesses and helps them align their efforts and strategies towards a common goal. The concept was popularized by Sean Ellis, a startup advisor, and entrepreneur. The North Star Metric should reflect the ultimate success and value creation for the users or customers. For different businesses, this metric can vary but should always be centered around delivering value and driving user engagement.
Key ConceptsFocus on Core Value: The North Star Metric is focused on the core value proposition of the product or service, emphasizing what truly matters to customers.
Singular Metric: It’s a single, easily understandable metric that simplifies decision-making and goal-setting.
Customer-Centric: The metric revolves around delivering value and a positive experience to customers, making it customer-centric.
CharacteristicsAlignment: It aligns all team members and departments within a company toward a common goal.
Long-Term Success: The North Star Metric is oriented towards long-term success, not just short-term gains.
Measurability: It should be measurable and quantifiable, allowing for tracking and analysis.
Customer Value: The metric emphasizes delivering value to customers, fostering customer satisfaction and retention.
ImplicationsStrategic Focus: The North Star Metric helps businesses focus on what truly matters in terms of delivering value and achieving long-term success.
User Engagement: It encourages strategies that increase user engagement and satisfaction, leading to higher customer retention.
Data-Driven Decisions: The metric promotes data-driven decision-making, as it requires measurement and analysis. – Alignment: It aligns the entire organization, ensuring that everyone works towards the same goal.
AdvantagesClarity: The North Star Metric provides clarity by highlighting the most important goal.
Alignment: It aligns the organization’s efforts and resources, reducing fragmentation.
Customer-Centric: The focus on customer value often leads to improved user satisfaction and loyalty.
Measurable: It is quantifiable, allowing for tracking and progress assessment.
DrawbacksSelection Challenge: Choosing the right North Star Metric can be challenging and may require testing different options.
Complex Businesses: For complex businesses with multiple products or services, finding a single metric can be difficult.
Short-Term vs. Long-Term: Overemphasizing short-term gains at the expense of long-term value creation can be a drawback if not managed properly.
ApplicationsTech Startups: Many tech startups use the North Star Metric to measure and improve user engagement and retention.
E-commerce: Online retailers often focus on metrics related to repeat purchases and customer lifetime value.
Streaming Services: Streaming platforms may center their strategies around user engagement metrics, such as time spent on the platform.
Subscription Services: Subscription-based businesses can focus on metrics related to subscriber growth and churn rates.
Use CasesSocial Media Platform: A social media platform identifies “daily active users” as its North Star Metric, striving to increase user engagement and time spent on the platform.
E-commerce Store: An e-commerce store adopts “average order value” as its North Star Metric, working to increase the average amount customers spend on each purchase.
Subscription Service: A subscription-based service selects “monthly subscriber growth” as its North Star Metric, aiming to increase its subscriber base.
SaaS Company: A Software-as-a-Service (SaaS) company chooses “user adoption rate” as its North Star Metric, focusing on getting more users to actively use its software.
ConclusionThe North Star Metric is a strategic tool that guides businesses towards delivering value to customers and achieving long-term success. By focusing on a single, customer-centric metric, organizations can align their efforts, drive user engagement, and make data-driven decisions that lead to growth and customer satisfaction.

A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

Understanding a north star metric

A north star metric is the one measurement most predictive of the long-term success of a company.

To be deemed a north star metric, the measurement must:

  1. Lead to revenue generation.
  2. Reflect customer value.
  3. Measure progress.

Since long-term success is intrinsically related to customer satisfaction, an effective north star metric is any metric that delivers value. In theory, a business that focuses on its north star metric should be successful as a natural by-product.

How to determine a north star metric

As noted in the introduction, a north star metric must satisfy three criteria. 

Many companies will be tempted to make revenue their north star, but a metric that makes money while ignoring customer needs is unsustainable.

To phrase the NSM itself, a business must incorporate two components:

  1. A statement of its product vision, and
  2. A metric that serves as a key measure of the product strategy.

With that in mind, here are some further general tips on determining this important metric:

  • The business must understand the value customers receive from its products and how that value is derived. The final metric should relate to the customer experiencing the core value of the product.
  • The metric should reflect the engagement and activity level of the user.
  • It should be a single factor that clarifies whether a business is pointed in the right direction.
  • It should also be simple to understand and clearly communicated across the organization. However, in some cases it might be difficult for a single department to understand how their work influences the NSM. To solve this issue, the department can identify its own metric which supports the broader NSM.
  • Businesses should not agonize over discovering the perfect metric. The process may require several failed attempts before the most suitable metric is discovered.
  • The north star metric is not set in concrete – it should change and evolve as the company changes and evolves. Monthly active users was the NSM of Facebook in the early days. But years later, Facebook realized that daily active users was an NSM that would allow them to remain competitive.

Examples of north star metrics in business

To better understand north star metrics, consider these real-world examples:

  • Airbnb:
    • Number of Nights Booked: Airbnb’s primary focus is on connecting travelers with unique lodging experiences. By tracking the number of nights booked, Airbnb assesses its success in providing accommodations that meet travelers’ needs and preferences.
  • Facebook:
    • Daily Active Users: Facebook’s core mission is to connect people worldwide. Daily Active Users (DAUs) reflect the platform’s ability to keep users engaged and returning to the platform regularly for social interactions, content sharing, and engagement.
  • WhatsApp:
    • Number of Messages a User Sends: WhatsApp, a messaging app, measures user engagement through the number of messages sent by each user. This metric indicates the level of communication and interaction among users on the platform.
  • Quora:
    • Number of Questions a User Answers: Quora aims to provide a platform for knowledge-sharing and learning. The number of questions a user answers reflects their contribution to the community’s knowledge base and indicates user engagement.
  • Spotify:
    • Time Spent Listening: Spotify’s primary goal is to provide an enjoyable music streaming experience. Time spent listening indicates user satisfaction and engagement with the platform’s vast music library.
  • Uber:
    • Rides per Week: Uber’s success relies on its ability to connect riders with drivers efficiently. Rides per week reflect the frequency of Uber usage by riders, which is a crucial factor in the company’s growth and revenue.
  • Amazon:
    • Number of Monthly Purchases: Amazon’s North Star metric focuses on customer transactions. The number of monthly purchases highlights the platform’s role as a preferred choice for online shopping, emphasizing customer loyalty and sales volume.
  • Netflix: Monthly subscriber retention rate.
    • Netflix’s primary goal is to keep subscribers engaged and prevent churn. The monthly subscriber retention rate helps them understand how many customers are continuing their subscriptions, indicating the platform’s content and user experience quality.
  • LinkedIn: Daily job applications.
    • LinkedIn focuses on helping users find relevant job opportunities. The daily job application metric aligns with their goal of connecting professionals with the right career opportunities.
  • Instagram: Daily photo uploads.
    • For Instagram, the number of daily photo uploads reflects user engagement and content creation, which is fundamental to the platform’s success.
  • Twitter: Daily tweets per user.
    • Twitter aims to keep users actively sharing their thoughts and engaging with others. The daily tweets per user metric measures the platform’s ability to maintain user activity.
  • Dropbox: Files synced across devices.
    • Dropbox’s North Star metric revolves around user data synchronization across devices, ensuring that files are readily accessible to users whenever and wherever they need them.
  • Slack: Messages sent per user.
    • Slack’s success depends on active communication among team members. The number of messages sent per user highlights the platform’s effectiveness in facilitating workplace communication.
  • Tinder: Matches per week.
    • Tinder’s North Star metric focuses on connecting users with potential matches. Matches per week demonstrate the platform’s ability to create meaningful connections.
  • Airline Industry: Load factor (percentage of filled seats on flights).
    • Airlines aim to maximize the efficiency of their flights by filling as many seats as possible. The load factor metric helps them optimize capacity and revenue.
  • E-commerce: Average order value (AOV).
    • Online retailers like Shopify track AOV to understand how much customers typically spend per order. Increasing AOV can lead to higher revenue.
  • SaaS (Software as a Service): Monthly recurring revenue (MRR) growth rate.
    • SaaS companies, such as HubSpot, prioritize MRR growth rate to assess the expansion of their subscription customer base, indicating business scalability.
  • Gaming Industry: Daily active players.
    • Mobile game developers like Supercell monitor daily active players to gauge the popularity and engagement of their games.
  • Real Estate: Average days on market (DOM).
    • Real estate agents use DOM as a North Star metric to understand how quickly they can sell properties, which directly impacts their revenue and efficiency.
  • Education Technology: Student course completion rates.
    • EdTech platforms like Coursera focus on student course completion rates to measure the effectiveness of their courses and the satisfaction of learners.
  • Healthcare: Patient satisfaction scores.
    • Hospitals and healthcare providers prioritize patient satisfaction scores to ensure quality care and improve patient experiences.
  • Food Delivery Services: Delivery time.
    • Services like DoorDash emphasize reducing delivery times to enhance customer satisfaction and encourage repeat orders.
  • Automotive: Vehicle fuel efficiency (miles per gallon).
    • Car manufacturers aim to improve vehicle fuel efficiency to meet environmental standards and appeal to cost-conscious consumers.
  • Telecommunications: Average revenue per user (ARPU).
    • Telecom companies like AT&T track ARPU to assess the profitability of their subscriber base and identify opportunities for upselling services.
  • Financial Services: Customer Net Promoter Score (NPS).
    • Banks and financial institutions use NPS to measure customer loyalty and assess the likelihood of customers recommending their services to others.
  • Retail: Foot traffic conversion rate.
    • Physical retail stores track foot traffic conversion rates to determine how effectively they turn in-store visitors into paying customers.
  • Hospitality: Occupancy rate.
    • Hotels and resorts monitor occupancy rates to optimize room pricing and ensure efficient use of their facilities.

Key takeaways:

  • Definition and Significance of a North Star Metric (NSM):
    • A North Star Metric is a singular key performance indicator (KPI) that a company identifies and focuses on to achieve sustained growth and success.
    • It acts as a guiding light, aligning the entire organization around a common goal and strategy.
    • The NSM is not just about revenue; it’s a metric that reflects customer value and progress towards achieving long-term success.
  • Criteria for an Effective North Star Metric:
    • The NSM should lead to revenue generation, as it directly impacts the company’s financial health.
    • It must reflect customer value, ensuring that the company’s offerings are meeting customer needs and expectations.
    • The metric should measure progress and indicate whether the company is moving in the right direction toward its goals.
  • Selecting the Right North Star Metric:
    • Understand Customer Value: The chosen NSM should be directly tied to the core value that customers receive from the company’s products or services.
    • Reflect Engagement: The metric should gauge user engagement and activity level, indicating how deeply customers are interacting with the company.
    • Simplicity and Clarity: The NSM should be simple to understand and communicate across the organization, ensuring everyone is aligned.
    • Departmental Alignment: Each department can have its own supporting metric that contributes to the overarching NSM, ensuring alignment across teams.
    • Iterative Process: Finding the perfect NSM may require experimentation and iteration, and it’s okay to pivot if necessary.
  • Evolution of the North Star Metric:
    • The NSM is not fixed; it should evolve as the company’s strategies, products, and market conditions change.
    • Adaptation is essential to stay competitive and relevant in a dynamic business landscape.
    • Example: Facebook initially focused on monthly active users as its NSM, but later shifted to daily active users to align better with user engagement.
  • Examples of North Star Metrics in Business:
    • Airbnb: Number of nights booked. This reflects the company’s core value of connecting travelers with unique lodging experiences.
    • Facebook: Daily active users. This emphasizes the platform’s engagement and the frequency of user interaction.
    • WhatsApp: Number of messages a user sends. This metric aligns with the messaging app’s primary purpose.
    • Spotify: Time spent listening. This reflects the platform’s aim to keep users engaged and consuming content.
    • Uber: Rides per week. This metric drives the company’s focus on consistent use and rider loyalty.
    • Amazon: Number of monthly purchases. This highlights the frequency of customer transactions.
  • Key Takeaways:
    • A North Star Metric is a crucial KPI that guides a company’s growth strategy.
    • It should embody customer value, engagement, and progress toward long-term success.
    • The NSM should be adaptable and evolve as the company changes over time.
    • Aligning departments and teams around the NSM fosters a unified approach to achieving goals.
    • The process of identifying the right NSM may involve trial and error, but it’s essential for sustained growth and competitiveness.

Connected Business Concepts And Frameworks

ICE Scoring

ice-scoring-model
The ICE Scoring Model is an agile methodology that prioritizes features using data according to three components: impact, confidence, and ease of implementation. The ICE Scoring Model was initially created by author and growth expert Sean Ellis to help companies expand. Today, the model is broadly used to prioritize projects, features, initiatives, and rollouts. It is ideally suited for early-stage product development where there is a continuous flow of ideas and momentum must be maintained.

Virtuous Cycle

virtuous-cycle
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and the product is new or existing.

Digital Strategy

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Blitzscaling

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Bootstrapping

bootstrapping-business
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.

TAM, SAM, SOM

total-addressable-market
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.

Comparable Analysis Framework

comparable-company-analysis
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

Growth Hacking

north-star-metric
A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Engines Of Growth

engines-of-growth
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.

Revenue Streams Matrix

revenue-streams-model-matrix
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.

RACI Matrix In

raci-matrix
RACI matrices illustrate the functional role that each person plays on a project team. In creating these matrices, businesses can effectively balance project workloads and identify a clear project manager. A RACI matrix is a simple and effective means of documenting project roles and responsibilities.

SWOT Analysis

swot-analysis
SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

TOWS Matrix

tows-matrix
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.

Read Next: Growth Hacking, SWOT Analysis, Personal SWOT Analysis, TOWS Matrix, PESTEL Analysis, Porter’s Five Forces.

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