The North Star Metric: What Truly Drives your Business
Is the "North Star Metric" (or NSM) merely another marketing jargon used to rename a concept we’re already familiar with? We speak of key performance indicators (KPIs) and identifying your sustainable competitive advantage - is this essentially the same thing?
Well, yes and no. The NSM is indeed a top-level metric but its focus leads to revenue and adds more focus on customer-centricity and value-driven measures.
What is the North Star Metric?
The phrase "North Star metric" was coined by startup investor Sean Ellis (Hacking Growth) with the goal of shortening meetings, cutting down on red tape, and uniting teams to concentrate on growth. The phrase "North Star metric" is a play on words that refers to Polaris, the star that sits directly above the Earth's North Pole, giving direction to seafarers of old.
In looking for your NSM, here’s what you should know:
Every level of your firm should be able to understand the NSM, first and foremost.
It represents the key measurement that assesses the success of your product and business as a whole.
That "Aha” moment of customer value needs to be reflected in the NSM. The “Aha” moment occurs when a customer truly understands the value you offer.
The NSM needs to be quantifiable and evolving.
It creates a relationship between revenue, customer values, and product goals.
In simpler terms, NSM is a single metric that best captures the core value that your product delivers to customers. Think of your North Star sitting at the top of a hierarchy of KPIs, which are all designed to move your business forward. It connects daily priorities and ensures that teams align toward a common objective to make growth happen.
NSM vs KPI
The belief that there should only be a singular, dedicated, top-level metric labeled as the North Star is not what we are aiming for here.
Businesses with complex organizational systems may have multiple North Stars, and in any case, each North Star measure is composed of a number of sub KPI-metrics. Any company that abandons all KPIs in favor of just one, such as recurring revenue, would most likely fail.
The NSM is in place to ensure focus on value instead of just revenue or profit. Value is a much clearer indication of sustainable growth.
Examples of NSMs
Let’s have a look at a few examples from top businesses in 2022.
YouTube — Minutes watched
Every YouTube video viewed contributes to the enjoyment of both the viewer and the uploader who are seeking out free, high-quality entertainment.
eBay — Gross merchandise volume
Airbnb — Nights booked
Since eBay and Airbnb operate in two-sided markets, bringing supply and demand together and facilitating transactions are their North Star criteria. While eBay tracks the total amount of money traded, Airbnb tracks the number of reserved nights.
Facebook — Daily active users
The more engaged Facebook users are, the more probable it is that they will find the people and content they are interested in.
Dropbox — Teams using Dropbox Business
When teams are regularly using Dropbox to share files, they are getting the core value the product offers.
Amplitude — Weekly Querying Users running and sharing more than three charts
Amplitude wants to monitor how well they are able to keep and gain new clients. The "sticky" point, according to Amplitude's data analysis, is three times each week.
Miro — Number of collaborative boards within a business
The more widely used a tool is, the harder it is for a business to replace it – more collaboration, greater stickiness for Miro.
Notice that not one is flat-out revenue. Each NSM of these highly successful businesses are focused on the value they provide to clients/customers.
Steps to finding your North Star
Step #1: Start with the “Aha” moment
Your North Star metric focuses everyone on your team towards long-term, sustainable growth. This means you must align (a) what problem your product solves and (b) problems your customers want to solve.
When customers clearly see this alignment with your company’s core values, the “Aha moment” occurs. That’s the crucial point when they decide, “Yes, I’m going to use this product or service.”
How to identify your “Aha” moment:
Use your data and analytics to study the behavior of your most successful customers. These people who experienced the “Aha” moment - what are the things they have in common?
Talk to your customers. Ask them for feedback. Add a qualitative aspect to your quantitative data.
Step #2: Define your Activation Point
It is important to note that your customers do not “experience” value at the Aha moment - that was only a point of recognition.
The Activation point is when your customers start using your products or services; when they start experiencing the value promised.
For some businesses, the Activation Rate is their North Star Metric. But omitting customer retention may not be the best strategy for long-term success. Always think long-term.
Step #3: Determine engagement frequency
Customer retention is necessary for sustainable growth, so this should be included in a solid North Star Metric as well.
How frequently must your customer engage with your product/service and carry out the essential tasks before adopting it? Define what makes your offering more valuable. Determine what makes your customers stick around.
Start by segmenting your user base. Then, for accounts that have reached the activation point, look at usage data to see how they interacted with your product/service over the initial days.
Step #4: Define your North Star based on the data
Now that you understand what it takes to achieve customer success, how can you identify the "one thing" out of all of that data such that it becomes your North Star Metric? Simply connect (a) the primary activity that your users perform when using your product/service and (b) add the required engagement. That’s your NSM.
Ready to find your North Star? Our team of marketing experts onvert your data into actionable metrics. Reach out today!