What is a North Star Metric?

In this article, we cover the concept of what is a North Star Metric, examples, benefits, and how you can find a relevant North Star Metric for your company. Every business needs a North Star Metric, something the team can look forward to achieving.

Long before we had GPS units, the most important and easiest star to find in the night sky was the North Star. Sailors depended on the North Star for direction to land, hence the term “ Metric” as coined by startup investor Sean Ellis.

The North Star Metric is easily the most powerful but easily misunderstood metric in marketing.

Studies show that companies who do not define their north star metric accurately end up dealing with the consequence of leading their team through an unintended path.

You’ve probably heard of the concept of a North Star metric before coming across this article, but what is it, exactly?

In this article, we cover the concept of what is a North Star Metric, examples, benefits, and how you can find a relevant North Star Metric for your company.

What Is a North Star Metric?

A North Star metric is the one measurement that’s most predictive of a company’s long-term success.

A “North Star” has three requirements to be considered: lead to revenue, reflect customer value, and measure progress.

It represents the key metric that you should focus on over time to ensure that your company is moving in the right direction.

This could be anything from customer acquisition to revenue growth.

To bring home this concept, Let’s take a look at some of our favorite companies and their North star metrics:

Spotify = ‘Time spent listening

Airbnb = ‘Number of nights booked ‘

Facebook = ‘Monthly active users

Uber = ‘Rides per week’

Slack = ‘Daily active users

Ps: It’s also important to note the difference between a North Star Metric and One Metric that Matters. Studies show that tons of marketers mistake these two terms.

The former is the metric which your entire company focuses to achieve long-term growth — the time span is anywhere from several years to infinity. The latter, on the other hand, speaks to a metric which a team focuses on to achieve rapid growth for a period of 2 to 6 months.

What Are the Advantages of Having a North Star Metric?

Remember our short story on the origin of the North Star?

Picture your company as a traveler on the vast shores of the Sahara desert.

Without the right North Star metric, you can imagine you’ll have a hard time tracing your coordinates and getting to your destination.

So, how do you go about finding your North Star, and what are the benefits?

Predictability

The North Star metric is a measurement that’s most predictive of a company’s long-term success, i.e., if you want to effectively measure how your business works against a set goal and over an extended period, then identifying your North Star metric is your best bet!

It is not uncommon for marketing teams to be tasked with achieving goals that may not be aligned with the true North star metric of the business.

By defining and cascading down the what your company’s NorthStar metric is, teams are able to be laser-focused on improving a single metric, resulting in big gains for the company.

Track Progress

The north-star metric helps you track your progress over time. By comparing current results against past performance, you can see exactly how you’re doing and where you need to make changes.

How Can You Create a North Star Metric for Your Company?

If you’re already in the desert with no true north, then you should at least start considering getting one.

So how can a company identify their True North Star?

1st rule of thumb: Organize strategy sessions to establish what metrics are genuinely crucial to your business.

2nd Rule of Thumb: Leverage a powerful analytic tool to track how well your company is performing against those metrics in rule 1. Subsequently, use those insights to prune out to your true North Star metric.

What Are Some Examples of North Star Metrics?

North Star metrics are most times leading indicators to revenue growth and should be specific to your company.

However, there are a few generic examples of key metrics that can serve as a North Star metric, namely:

• Company’s customer acquisition costs (CAC) — This is the amount of money a company spends to acquire a new customer
• Customer lifetime value (CLV) — This is the average value of a customer over the lifetime of their relationship with the company.

These are two of the most commonly used North Star metrics, and they can help you measure how efficiently you’re acquiring customers and how much value they’re bringing in over time.

Other common North Star metrics can include return on investment (ROI), gross margin, and profit margin.

How Can You Measure Your North Star Metric?

Now that we know what a North Star metric is and how to identify it, the next question is: how can we strategically measure this metric?

Fortunately, there are a few methods that are both accurate and easy to implement.

Whichever method you choose, make sure you track your progress regularly and make changes as needed to stay on track for long-term success.

Additional Considerations

There are a few challenges associated with having a North Star metric. First and foremost, you have to be able to identify it accurately. It’s not always easy to find the one measurement that’s most important, and even harder to make sure all your other metrics are aligned with it.

Another challenge is maintaining focus on the North Star metric over time. As your business grows and changes, it can be tough to keep track of all the moving pieces and stay true to the original goal.

But with careful planning and commitment, it’s achievable!

To ensure you are doing what’s right, your North star Metrics, you should check these boxes:

• Be easy to measure
• Have a high correlation with success.
• Have clear communication with the company’s strategy
• Provide an objective view of the performance of the company

Conclusion

As mentioned earlier, identifying your North Star Metric is the first step; after identification comes tracking and measurement.

Without the right analytics setup, finding and tracking your Northstar would be like trying to read a map in the dark.

The right analytics setup should involve consolidating your marketing performance data in scalable data systems such as Snowflake.

With Data warehouses like Snowflake and transformation tools such as Datameer, you have your performance data available on the fly.

This will help you track your North Star more effectively and in real-time.

If this piques your interest, please feel free to take Datameer for a spin in. Sign up for your free trial today !

Originally published at https://www.datameer.com on August 2, 2022.