What Is a North Star Metric and How to Find Yours

What is a North Star Metric (NSM)?

North Star Metric (NSM) is a measurable metric that helps a company focus on achieving long-term growth, from a period of a few years to forever. Many companies are short-sighted, but this metric helps you look down the road. It impacts your entire company and is directly connected to the company’s success (and business model, of course). The NSM is the company’s defined measure of success, so when the metric improves, the company has positive growth; when the metric declines, the company does as well.

Each company has to identify its North Star Metric, and the best time to do this is when you are planning your growth strategy. Ideally, this metric shouldn’t change, unless your company is pivoting or changing direction and vision. A good NSM is the indicator of the most important value your customers get from using your service. 

Widely-known North Star Metric examples are:

• Spotify = ‘Time spent listening‘ - Spotify is all about music streaming. The more customers listening to the music, the greater growth for the company. Simple. 
• Airbnb = ‘Number of nights booked‘ - Airbnb is a marketplace for landlords and renters. The more nights people book through Airbnb, the more value the renters get and the more the landlords benefit.
• Facebook = ‘Monthly Active Users‘ - Facebook’s revenue comes from ads. The more people visiting FB on a monthly basis ensures more revenue generated from ads. This means more value for the advertisers, and ultimately for Facebook.
• WhatsApp - Messages sent
• Quora - Number of questions answered
• Uber - Rides per week
• Amazon - Number of purchases per month

Revenue is NOT a North Star Metric. Revenue is the price your customers pay, while your NSM is the value they get in return for the price. More revenue is a direct result of growing your NSM. If you define your NSM as revenue, then your focus becomes making more money in the short term. When your focus is on providing value to customers, you focus on making more money in the long term.

Why is NSM important?

There are many benefits in setting a North Star Metric, but the below three are the most important, in my opinion, because they affect critical factors in day-to-day work.

1. Focus

Companies that can establish a good NSM position themselves to know what they are doing and the value they are providing to customers. That makes it much easier to make product decisions, and essentially it focuses the entire company and all the team members on the same goal. This is super critical for start-ups, as many companies fail to create focus (and say ‘No’ to things), which ultimately shut them down even if they have a great product or service. 

2. Overcoming challenges

Imagine you are in a completely dark tunnel and you don't know where to go, and suddenly you see a light at the end of the tunnel. That's the North Star Metric. Whether it’s new competition, regulatory changes, or a decline in sales, NSM can get you back on track, keep you focused on the goal not just the revenue, and remind you ‘why you started’. NSM means you know your business, understand your customer, and know where you want to go...and it will help you find the right way to get there. When the company faces a difficult situation, companies that don’t have clear goals and lack an NSM tend to pivot instead of finding a different way to get to the desired destination. 

3. Customer value mindset

The company should focus on adding more value to its customers rather than taking more money from them. Money/revenue is the result of the value you provide. There are many ways to make money, but if your company has a viable vision, you will focus on the value that will get you to your goal line. If you attach this to your business model properly, the more value you provide will translate into more you will make. Although it’s just a mindset change, it has a huge impact on how you and your team will work to achieve it. You don’t hear successful entrepreneurs or business owners say “We are making tons of money” when asked, “What is your company doing?”

How to find your NSM 

Here are 5 quick steps to help you find your North Star Metric:

Step 1 - What’s your customer’s success moment (end-of-the-funnel value)?

Your NSM is the value your customers get at the end of the funnel. It is the action that is closest to the moment your customers get the desired result from your service. For example: number of booked nights for Airbnb, number of messages sent for WhatsApp, rides per week for Uber, and number of questions answered for Quora. moment captures your customer’s intended result from your product or service.

Breakdown your product funnel and find the moment when your customers reach the end-result. Read the example given below to make sure you didn’t set a vanity metric that would need to be changed later. Once you have determined the pivotal moment for customers, continue to the next step. Make sure this value is relevant to all customer types

Step 2 - Measure and set the right metric.

First, your NSM must be measurable. Measurable means you can track this event without asking the user for anything. For example, user satisfaction NPS score is not a measurable metric. This moment must be tracked automatically when it occurs. If it’s not, go back and rethink it. You want to look for an NSM metric that is an absolute number and that can provide instant feedback on success. An average (avg.) or percentage (%) are not good metrics since their frequency of use is low and they have a maximum threshold. Look for ‘Number of times’ metrics. Once you have a measurable metric that is an absolute number, continue to the next step.

Step 3 - Is this metric directly connected to your revenue growth?

When this metric grows, does your business revenue grow as well? If the answer is yes, continue to the next step.

Step 4 - Set the success moment intervals.

A good NSM will reflect a frequent action your customers are doing on an hourly/daily/weekly/monthly basis. It is necessary in order to track your progress and make sure your company grows and improves over time. If you can time-bound your metric and later analyze it by hours/days/weeks or a month, continue to the next step.

If your success moment happens less frequently than once a month, I suggest you revisit and go back to Step One. You need to be able to get instant feedback on the company’s growth.

Step 5 - You have full control over the NSM.

Your NSM should be within your control. Let’s go back to Airbnb. Airbnb won’t run after the number of 5-star reviews people write following an Airbnb stay. Airbnbs have little influence on external factors such as the host hospitality, the weather, or other things that might affect the customer satisfaction that is not within the Airbnb’s control. They do, however, have full control of the number of nights books, which is the closest success moment to the final result. If your NSM has little or no influence by external factors, continue to the next step.

North Star Metric Example

Now that you know what we mean by North Star Metric, why is it important, and how to find yours, here’s a good example of NSM to kick things off, with a real-life reference in mind.

Let’s say I have a big supermarket with an online store that offers grocery deliveries (a good example in these crazy Corona days). As you know, when you buy your groceries you want to get what you’ve ordered on time!  

What can be a good North Star Metric?

“The number of orders made”? Well, this is an indicator of making more revenue, but it doesn’t say anything about the customer’s satisfaction.

Let’s think about it. There are 3 key factors in my online groceries delivery business:

• Customers want to receive their order
• Customers want to receive their order on time
• Customers want to receive all the groceries they have purchased

If all of the above occurs, my customer will be satisfied. If not, they are going to complain (or stop ordering - which will affect my NSM as well).

Knowing this, a good NSM would be “Number of orders delivered without complaints”. Let’s see how it follows the above 5 steps:

1. This is my customer’s success moment that is closest to the end result the customer is looking for (the end result is the food consumed)
2. This is a measurable moment and an absolute number.
3. This metric is directly connected to my business growth. The higher this metric gets, the more revenue my business will be generating. And it makes sure the business will keep growing in the long term since people will continue using the service.
4. I can time-bound this metric and make sure I improve on a weekly and monthly basis, for example. 
5. I am the one responsible for achieving this NSM. In other words, it is on the business side, not the customer, to ensure that NSM is reached. I am in control of setting the expected arrival time (to set expectations with the customer - this is good when there are cases that might affect the usual delivery time), packing the customer’s desired groceries (and alerting him when there are things out of stock while offering replacements), and finally, deliver the order as my customer is expecting and on time.

Conclusion

Setting a good NSM is what you can do to turn your invisible vision into a visible one. NSM means you know your business, understand your customer, and know where you want to go...and the NSM will help you find the right way to get there.

After all,

You can’t hit a target you cannot see, and you cannot see a target you don’t have.

Zig Zigler