The North Star Metric was invented in business to give companies a singular emphasis on a single target. Everyone should still measure progress by whether or not they are progressing the organization using this metric instead of being distracted by day-to-day matters or individual projects.
This article is the first in a series of deep dives on the North Star Metric. We hope it serves as a guide to why this metric matters, how to interpret it, and how to use it to drive the long-term product plan and development for product leaders and managers around the globe.
A walk through of the article and topics we’ll cover:
- What is a north star metric
- Benefits of north star metric (NSM)
- 6 Essential steps to choose your north star metric
- 7 examples of a good north star metric
- How to implement the north star metric (NSM)
Let’s dive in!
Companies use North Star Metric (NMS) as a focus for their growth. The North Star Metric came from Silicon Valley companies with explosive growth. It helps teams to look beyond the surface-level growth and concentrate on long-term customer and product growth.
A north star metric must have these three factors:
- Add Customer Value
- Measure Progress
- Drive Revenue
The metrics with the above factors and contributions from product teams for improvement provide sustainable company growth and improved user experience.
By now, it's understood that NSM is a metric to drive growth. Let’s see how this metric helps growth hackers and makes sure that the company grows:
- Focused on One Goal: The entire company is focused on one goal. The numbers and tasks can be different for each department, but the north star metric is the single aspect for everyone to focus.
- Simplified Strategy: It simplifies the overall company strategy into actions that everyone can understand, remember, and execute.
- Enhanced Customer Value: Adding value to the customer is one of the crucial factors in NSM. As a result, it improves customer engagement and customer experience.
A good north star metric must indicate future success, and every product should have a north star metric. While the other key metrics like monthly revenue gives you an insight into what happened in the past rather than predicting future revenue.
Close to the customer’s success moments: A good NSM is always close to the moment when the customer gets the intended result from your product.
For Airbnb, the NSM is the number of nights booked, close to the ease of trip booking or booking facility in general (customer’s intended result moment).
Adds value to your customers: The NSM should not be just for the company profit; it should add value to your customers. For example, if your NSM is the number of orders made, it means you are not focusing on the quality of service. Hence, the number of orders delivered without complaints would be a better NSM than just the number of orders made.
The satisfied customers will always refer your product or service to their friends resulting in the company’s long-term growth.
- Measurable: Continuing with the above example, you cannot measure ‘satisfaction’ in general. Thus, you will have to figure out a way to measure quality. Reduced number of complaints against X orders or the number of orders delivered before the anticipated time can be considered measurable NSM.
Time-bound: You NSM should be measurable based on a certain period, which can be an hour, day, week, or month to help you in clearly seeing the growth over time. For example, the number of orders delivered without complaints in a week metric helps compare against the previous weeks’ data. Without the week parameter, the comparison factor would be missing from the above NSM.
Never take the year as a period because you should see growth data regularly. Ideally, your NSM should grow every day or week.
- Not influenced by external factors: You NSM should only be influenced by your customers and no other external factors. For example, in the tourism industry, the weather, flight delays, or the local people act as external factors. These factors can influence the customer travel experience and hence the star rating they leave for the entire trip. Thus, the number of 5-star ratings per month is not a good NSM for the tourism industry.
- Reflect your growth: Your NSM should be directly proportional to your business growth i.e. if the NSM is increasing (positive), your business should grow too, there cannot be an excuse for that. For example, suppose the product or service is related to the reports generation and download. In this case, the NSM should be the number of reports downloaded by unique customers instead of the total downloads. Because the total number of downloads can also include scenarios where the customers generated and downloaded the reports multiple times (reason being that the service did not work as expected for the first time).
Some of the famous north star metric examples are:
- LinkedIn’s initial NSM was the number of endorsements given because it was a relationship-building factor between the users. But LinkedIn soon realized that endorsements were falsified and they changed their NSM to monthly active users (MAU).
- Spotify’s NSM is the time spent listening on the platform. This NSM measures the value that customers get from the platform.
- Hubspot is a CRM and its NSM is the number of weekly active teams. It captures the new accounts that are getting value and providing a signal of future trial conversion and subscription revenue. Hence this metric indicates or predicts the future revenue.
- Intercom is a messaging platform with the vision to build a suite of products that makes easy communication with the users of your business. It offers services for both B2B and B2C segments. Their NSM is the number of customer interactions.
- Slack helps in-office collaboration with the mission to keep teams organized and its NSM is messages sent within the organization.
- Quora north star metric is the number of questions answered, which is aligned with their mission of being a knowledge-sharing platform.
- Airbnb has the number of nights booked as their NSM because it perfectly combines the booker’s and owner’s value.
When you are all set with NSM, the next course of action is its execution within the company.
Every department of the company should have their goals that are aligned with your North Star Metric. So that every department, every team, and every contributor chase their metric, resulting in NSM growth. And then, the requirement is to set up a fertile ground for NSM to grow i.e. nurturing NSM with the right infrastructure and culture.
Your company will also need to set up the right analytics tools to measure the NSM progress.
What are you waiting for? Do the exercise to lock your NSM and then see the wonders! Also, feel free to load comment sections with your questions and feedback, I will be happy to address them.