You also probably also how important it is for your business and that you better find yours better sooner than later.
But first, let’s take things from the start.
What is a North Star Metric?
In the vast galaxy of growth metrics, what is the one metric that can show you the way?
The North Star Metric, henceforth NSM, is the single metric that can capture the essence of your business’s growth and what you need to measure in order to maximize.
Once you find your NSM, it becomes your business compass, pointing you in the right direction. By following the NSM you know you’re on the right track and making progress towards your ultimate objective.
What is important to remember, and you will realize as you keep reading this very article, is that NSM is not just about your business and its metrics. It’s also about your customers.
Ultimately, the NSM is the metric that truly reflects the value your business delivers. And the value your customers find.
North Star Metric Benefits
Now that you know what NSM is about, you probably want to know what it can offer to you, your team, and your business.
Well, finding your NSM can help your company in many ways.
- Resource optimization: Especially useful for startups. Instead of spreading yourself thin across multiple metrics, you can channel your efforts and investments towards the one metric that matters.
- Goal alignment: NSM can become the glue that ties all company’s goals together. When everyone understands and rallies around the same metric, it creates a shared sense of purpose and direction, ensuring everyone one working towards a common objective.
- Performance Measurement: The NSM serves as a reliable yardstick to measure your progress and success. It provides a clear benchmark against which you can track your performance over time.
- Customer-centric approach: Perhaps the most important benefit. Because NSM is also about unlocking customer satisfaction and loyalty. Finding the NSM means identifying the metric that reflects customer value, so you can ensure that your efforts are focused on meeting their needs, and delivering a great experience
North Star Metric vs One Metric That Matters (NSM vs OMTM)
In your marketing or business career, it’s very possible that you’ve come across both these terms, North Star Metric and One Metric That Matters. And maybe you thought that these are two terms that describe the same thing. But they don’t.
On the one hand, there is NSM. And as we saw, the NSM is the one key metric that captures the core value your business -as a whole- delivers to customers and focuses on long-term growth.
On the other hand, there is OMTM, a similar concept, albeit with one key difference: OMTM concerns a specific team each time and for short-term periods.
More precisely, here’s how they are further different:
Scope: The NSM is focused on identifying a single metric that captures the core value of the business. However, OMTM has a more narrow scope and it’s focused on identifying a single metric that measures progress towards a specific goal or objective.
Timeframe: The NSM is oriented towards long-term business growth and success, providing a guiding star that aligns the entire organization. In contrast, the OMTM is more focused on short-term performance measurement and decision-making, for shorter timeframes or specific campaigns.
Impact: The NSM captures the total impact of the business on its customers, encompassing multiple dimensions and touchpoints. On the other hand, the OMTM is often more specific and targeted, focusing on a particular aspect or goal within the business.
Flexibility: The NSM is a relatively stable metric that represents the enduring value proposition of the business. It may evolve over time but tends to remain relatively consistent. On the contrary, the OMTM can change more frequently, along with any short-term goals and priorities shifts. This way, it allows for flexibility in adapting to changing circumstances and objectives.
North Star Metric Examples
Different companies use different North Star Metrics.
Finding the right NSM is different from industry to industry. Here are a few examples of the different kinds of NSMs, companies use according to the industry they belong to:
- Social Media Platform: Daily Active Users (DAU)
- eCommerce Store: Average Order Value (AOV)
- SaaS Company: Customer Lifetime Value (CLTV)
- Online News Publication: Monthly Active Users (MAU)
- Ride-Sharing Service: Completed Rides per Driver
- Fitness App: Monthly Subscriptions
- Food Delivery Service: Orders per Customer
- Streaming Service: Subscriber Retention Rate
- Mobile Game: Daily Sessions per User
- Financial Institution: Assets Under Management (AUM)
However, this doesn’t mean that all businesses in the same industry use the same NSM. Keep reading to see why this might not be the case.
SaaS NSM examples
And here are some examples of what the NSM is for some of the biggest SaaS companies.
Intercom’s vision is to create a platform for easier communication between the business and the user. In its essence, it’s a messaging platform and its NSM is thought to be “The number of customer interactions per customer”.
Shopify provides helpful services to online stores, such as payment processing, marketing assistance, shipping support, and tools for engaging with customers. Shopify’s North Star metric is “Each merchant’s Gross Merchandise Volume (GMV)”, according to Helen Mou, Shopify’s Product Lead.
HubSpot is one of the most popular CRMs out there. It stands out for offering a comprehensive suite of products that cover Sales, Marketing, and Service. And according to the VP of Growth at Hubspot, they are more focused on a team than a personal level, therefore their NSM is “The number of weekly active teams”.
The popular video call platform has a pretty straightforward NSM: “Average weekly hosted meeting”. This number represents Zoom’s growth and its success overall. The people at Zoom keep a close eye on this number all the time to make sure it keeps getting bigger.
Docusign provides a solution for organizations to handle electronic agreements. Within the DocuSign Agreement Cloud, they offer a service called eSignature. Therefore, the NSM that made the most sense for them is the “Number of Documents Signed”.
Spotitfy’s users get the most out of the app the more they engage with it. In practice, this translates to the time they spend listening to music and podcasts.
Therefore, the NSM that makes the most sense for Spotify to use is “Time spent listening to music”.
7 Steps to Find Your North Star Metric
By now you must have familiarized yourself with the NSM. So it’s an excellent time to learn how you can find your North Star Metric for your own business.
Step 1: Define Your Business Goals and Objectives
To begin the process of finding your NSM, start by clearly defining your business goals and objectives.
Consider what you want to achieve in the long term and the key outcomes that you are looking for.
Step 2: Analyze Customer Behavior and Motivations
What makes your customer tick? Try to take a deep dive into understanding your customers’ behavior and motivations. This analysis will help you uncover why your customers use your product or service, what problem it solves for them, and the desired outcomes they seek.
Once you’ve done this, it will be easier for you to identify the key factors that drive customer success and satisfaction.
Step 3: Evaluate Key Metrics
Based on your previous analysis, identify a set of key metrics that align with your value proposition and customer motivations. Consider factors such as revenue, customer engagement, customer retention rate, or any other relevant metric that can mirror the effectiveness of your business.
Here are a few key metrics ideas:
- Daily Active Users (DAU)
- Average Order Value (AOV)
- Customer Lifetime Value (CLTV)
- Monthly Active Users (MAU)
- Monthly Subscriptions
- Subscriber Retention Rate
- Churn Rate
- Conversion Rate
- Customer Acquisition Cost (CAC)
- Return on Investment (ROI)
- Gross Margin
- Net Promoter Score (NPS)
- Cost per Acquisition (CPA)
- Customer Satisfaction Score (CSAT)
- Revenue Growth Rate
- Market Share
- Lead-to-Customer Conversion Rate
- Website Traffic
- Customer Churn Rate
- Average Revenue per User (ARPU)
- Customer Acquisition Rate
- Customer Retention Rate
- Customer Satisfaction Index (CSI)
- Customer Support Response Time
- Sales Conversion Rate
- Inventory Turnover
- Average Handling Time (AHT)
- Employee Productivity
Step 4: Ensure Universality and Target Alignment
Ensure that your NSM applies universally to your target audience. It should be relevant across different customer segments and accurately reflect the value delivered by your product or service.
Consider using tools like customer segmentation or market analysis to validate this universality.
Step 5: Mutual Effect on the Growth Funnel
An effective NSM can be influenced by everyone in your company – and by every stage of the growth funnel.
Be it an increase in Acquisition, Activation, Retention, Referral, or Revenue, it should reflect upon your North Star Metric; if there is growth in any of these stages, your NSM should also show growth.
Step 6: Choose Your North Star Metric
Now it’s time to actually select what your NSM will be. Review the key metrics you have identified and select the one that best represents the core value your business delivers to customers and significantly impacts your growth. This metric should be indicative of customer success, and align with your long-term objectives.
Finally, it should serve as a clear and concise measurement of your business’s overall performance.
Step 7: Start Tracking Your North Star Metric
Now that you’ve chosen your NSM make sure to begin measuring it the right way.
The frequency depends on the nature of your business, the rate of change in customer behavior, and the availability of data.
From startups to big tech companies, every business should try to find its North Star Metric. Your NSM will be the backbone upon which you want to grow your business; the metric of all metrics.
As a startup company, you aren’t going to need more than 1 NSMs at the beginning. However, when you offer distinct products or services from the same business, then it’s very likely that you are going to need more than one.
And if you need any help finding your North Star Metric, let us know!