Today, one metric heavily relied on is the North Star Metric (NSM). This key metric tracks the tipping point in your product usage and helps plan and project your company's future. Ultimately, the NSM allows start-ups to move past the surface level of their products and focus more on long-term, scalable growth.
A different approach is focusing less on more revenue; this metric helps you dig deep enough to understand the value your customers get from using your product. Once you determine the value your product delivers to your customers, the onus is on you to quantify this customer value into a measurable, single numerical quantity or objective function.
In essence, the North Start Metric is central to the development of your growth strategy, and it provides start-ups with concrete ways to measure growth within the organisation.
In this regard, and depending on your business model, your NSM should;
1. Have a high correlation with success
2. Be easy to measure (Most companies that ignore this don't find NSM helpful)
3. Align teams and put forth a clear direction regarding the company’s strategy
4. Provide an objective view on the performance of the company
Some organisations have gotten this right and are very clear on their North Star Metric. Some of the more recognisable ones are:
You can find your NSM using any of the analytical tools in the market. However, there are specific criteria a good North Star Metric should meet.
Here are six features to be captured in North Star Metrics;
The right North Star Metric will be very close to the moment your client gets the intended result from your services, products, or software (including SaaS company).
For instance, on Instagram, a leading indicator can be the moment a user feels heard through likes or comments on their posts. It can also be when a user feels entertained by engaging with someone else's post.
Another instance is Dropbox. A success moment here can be when a Dropbox user can effortlessly access their documents online, edit, comment, share and so on. A different scenario would be on the Airbnb website, where a client has quickly booked a trip, or an apartment owner has had their apartment booked.
NSMs, in their proper form, are all about customer focus and what your company brings to the table.
A sound NSM ensures that you also keep an eye on various AARRR/Pirate metrics. These include retention rates and referrals, and these go beyond your marketing KPIs.
For instance, the statement "the number of orders made on your website" focuses not on customer satisfaction but your marketing activities. The simple reason is this. A customer does not get any value simply by making an order.
Therefore, focusing on orders made opens your company up to loopholes.
Now, a solid NSM would be something in the lines of "the number of packages delivered without complaints". This offers you a better scale to measure customer satisfaction and highlights what you are doing right and what needs tweaking.
Granted, the ‘degree of unburdening’ and ‘satisfaction’ cannot really be measured. What can be measured, however, includes things like:
These criteria will help drive accountability.
An effective North Star Metric should be measured based on a set period. This can be a month, week, day, hour and so on.
You want to be able to see your growth over a set duration. As such, have clear goals that you want to measure with specific timelines in mind.
With this, you can compare the current month with your performance over the same month a year ago. You can also compare the current month’s performance to the previous month.
As a rule of thumb, try and avoid yearly goals; you want shorter timelines that allow you to check in on your growth more regularly. Two to six months should be sufficient.
The NSM number you settle on should not be subject to or influenced by external sources besides your clientele.
This is because the metric needs to reflect the bond between your business and customers in relation to the value your company delivers.
For instance, the metric "the number of 5-star journeys per month" for a travel firm is lacking. Reason: your firm has very little control over fundamental external circumstances like flight delays, weather, and hospitability- or lack thereof- of local people at the destination.
From whichever angle you look at it, your entire company grows as your NSM grows (so will your sales and monthly revenue). This should tell you that this metric should not be a vanity metric or a false or exaggerated figure.
If your number grows, but there is a disclaimer…for instance; "yes, our numbers have increased on trial accounts, but…
NSMs can be very instrumental in aligning your teams around a single goal as long as they are supported by a flexible organisational culture and tracked consistently.
Keeping in mind that your ultimate goal is growth and success, it’s okay to rethink things and back step as needed. After all, you do not want to waste your resources chasing the wrong star. You might not get it right from the get-go, but it matters that you work on it until you do.