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.

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

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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"