north-star-metric

North Star Metric In A Nutshell

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.
  • Facebook – daily active users.
  • WhatsApp – number of messages a user sends.
  • Quora – number of questions a user answers.
  • Spotify – time spent listening.
  • Uber – rides per week.
  • Amazon – number of monthly purchases.

Key takeaways:

  • 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.

Connected Business Concepts And Frameworks

AIDA Model

aida-model
AIDA stands for attention, interest, desire, and action. That is a model that is used in marketing to describe the potential journey a customer might go through before purchasing a product or service. The AIDA model helps organizations focus their efforts when optimizing their marketing activities based on the customers’ journeys.

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 by whether the market is new or existing, and the product is new or existing.

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.

Main Free Guides:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"