How To Define North Star Metric
Everything about your most important metric
What is North Star Metric
A North Star metric is the one measurement that’s most predictive of a company’s long-term success. “North Star,” a metric must do three things: lead to revenue, reflect customer value, and measure progress.
Well-known North Star Metric examples are:
- Spotify = ‘Time spent listening‘
- Airbnb = ‘Number of nights booked‘
- Facebook = ‘Monthly active users‘
The idea behind the North Star Metric is that if your company brings more value to your customers, then the growth of your company has to go positive. The assumption is that if your customers receive a lot of value, they will stay longer, buy more and refer more friends to your company.
So your business grows in every respect if your North Star Metric also grows.
“Revenue” is a poor North Star Metric. Revenue is the price that your customers pay, while your North Star Metric is the value that your customers get back for that price.
Benefits Of North Star Metric
A North Star metric is meant to be a guide. It’s a compass pointing you in the right direction and keeping you focused on your primary goal of company growth and success based on what makes your customers happiest and keeps them coming back for more.
- Alignment: Different teams will have their own sub-goals and -metrics to focus on, having a North Star metric means the whole company will be aligned around the same goal and will be able to map their team’s goal to the North Star metric.
Your entire company has the same focus. At the team level, you still focus on a different number, but ultimately everyone has the same goal. - Transparency: A North Star metric, since it measures company progress, can give everyone in your company a bird’s eye view of how the company is doing overall. Everyone can see at a glance how well the company is doing.
- Customer Focus: The company is more concerned with adding value for the customer than depriving value, since your North Star Metric is the number that best reflects the value your company brings to its customers, it helps you stay focused on improving the customer experience in all ways.
How To Find A North Star Metric
To find the North Star metric, companies must decide what is truly essential to the business. Companies are complex and succeed and fail for lots of reasons.
For many teams, some pillars are making customers happy, generating profit, and measuring progress toward those goals. A metric that simply makes money without satisfying customers will fail in the long run, as will a company that satisfies customers without being profitable. And a metric that doesn’t measure progress in a way that allows teams to act on its insights and change their behaviors isn’t useful.
A North Star metric must reflect all three factors, tailored to each business. Some methods for feeling out a North Star metric:
- Ask “What is essential to the business’s functioning?” Prioritize a list.
- Ask “What KPIs and metrics measure the top few, key factors?”
- Ask “What metric encapsulates all of the above?”
- Build a metric hierarchy with the North Star metric on top of the pyramid.
Like a seed, North Star metrics need fertile ground to grow. Companies that select a North Star need the right culture and infrastructure. Without cross-silo relationships and a willingness to prioritize the company good above the team good, some employees may reject the North Star metric, especially if they must change their behavior significantly, or if, like many sales teams, their compensation structure presents a conflict of interest.
