North star metric 101

Let’s start by saying that this article will talk about stars but not the ones in the sky. This star is particularly close to a business. At least, it should be. 

Small companies and huge multinationals alike use metrics to measure their KPIs, income, and expenses. It’s all about the numbers. They are 101% the cornerstone of a business. But the north star metric is a metric of a different kind. Discover what it has to offer in this article and how you can define the perfect one for your business.

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What is a north star metric?

The NSM is a metric that captures the core value a company adds to its clients with the products or services it sells and predicts future business performance. It is not a metric such as income, in the sense that it is not a direct number. This is a longer-term measurement that is focused on the added value to the clients based on a fundamental proposition: the more value, the more clients and income.

This metric is unique to every business and is shared by the whole company, guiding the rest of the metrics. Other metrics are particular to a department, say the marketing area deals with engagement. But the North Star is the foundation of the company. It works in the long run, so it takes time and effort to achieve it.

The theory says that, for a metric to be a North Star, it has to reflect three aspects: measure progress, lead to revenue, and indicate customer value.

It is called North Star because it is meant to guide the efforts of your business the same way the real North Star guided travelers to their destinations safely in ancient times.

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Why does your business need a north star metric?

Having a north star metric is not a choice because it basically states if your business is successful. It’s as simple as that. It helps you understand if you’re achieving your goals. If the metric looks good, congrats! If not, you can adjust your strategy accordingly and get back on track having in mind the bigger picture. 

It is common to see businesses fail because they were looking at a million metrics, going crazy, and eventually sinking in despair. You need something to look at to know how your company is performing overall. Otherwise, you are going blind. It also helps you gain perspective to avoid getting frustrated because other goals are not performing that well. For instance, while your income may not be desired, your business can be thriving because your app has 20K downloads. 

A North Star metric is also a KPI, but it’s an overarching one, and it has one goal: to keep you focused on what’s important for your business. Think of it as the glue that holds your company together: if everyone is aware of the North Star metric, we are all on the same boat moving towards the same destination. 

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How to define your North Star metric

This can be a simple task, but there are some key aspects to bear in mind when deciding upon your North Star metric that can boost your strategy.

Focus on a single number.

It is not mandatory, but it’s a good start and it can help you be organized when setting the rest of the KPIs. Don’t forget that many other goals will derive from this one. Keep it as simple as possible.

Make it accessible.

This guiding star is a cross metric, meaning that every department in the company will contribute to attaining it. Remember that not everyone is familiar with KPIs, numbers, and statistics. Again, keep it simple. Use language that your grandma can understand and avoid being too ceremonial about it. This is your company’s mission but condensed in a metric.

Do it progressively.

If it works better for you, you can think of intermediate goals that will eventually lead you to your North Star metric. This can help you stay calm and work towards your goals without obsessing over the North Star.

Ask questions.

The truth is you won’t discover your North Star if you don’t know every single thing about your business. A good way to begin is to ask the proper questions. 

Here you have some prompts that can work as guidelines:

• What is essential for my business to work? 
• What KPIs and metrics measure the fundamental aspects?
• What is my value proposal?

Follow a two-step process.

‍If you struggle to translate the mission of your company into a number, and you probably will, because it’s a complex task, you can split-up your ideas. 

• First, come up with a statement of the product vision. What is the need your product satisfies? Try to be as concise as possible. You can also gather with your team to bring a broader perspective and help you define the vision.
• Second, use a metric your company is currently pursuing as a starting point and adjust it according to the discoveries you made in the previous step. Maybe you were focusing only in the number of followers of a SM account, but if you want to build a community, you should also consider the engagement rate.

Ta-da! You have it. Remember to keep it as minimalistic as possible.

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The North Star Metrics of the big ones

Use this chart to help you further understand what a North Star metric looks like and get inspired to define yours.

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As you can see, they look simple. It doesn’t matter the industry, it all comes down to this one number. But rest assured that this number encompasses a lot. It basically speaks of the quality of your product/service.

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The benefits of a well-defined North Star

Businesses use the North Star metric so everyone from teams to clients are all on the same page.

Measuring KPIs implies a large volume of data and information, so it can get messy for each team if they don’t have one super metric to look at when they lose sight of the ultimate goal. You definitely don’t want your team accidentally working against each other.

The purpose of the North Star metric is to keep you focused on the business’s mission so it can grow steadily and under control.

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Let’s see the 3 main reasons why your business should have a clear North Star:

Business alignment and customer success. Having a North Star metric allows you and your team to answer one key question whenever you feel lost: how does my work influence the North Star metric? Listen to that reply and you will be able to adjust your strategy and stay on track. The everyday hussle and bustle can be too loud sometimes and it’s easy to get lost.

The NSM is a reflection of your clients’ satisfaction with your product or service. If your number looks good, you can be certain that your company adds real value to them.

Priority focus. Usually, there are an infinite number of things to measure and keep track of in a company. Every team works on their goals but the managers have to work with a more encompassing approach to make sure all the efforts contribute to the company’s ultimate goal. If you don’t have one, we have a problem. That’s when the North Star comes on stage. 

There is nothing more powerful than a single tool everyone can have a glance at and remember why they’re doing what they’re doing.

Transparency. The North Star metric helps everyone understand where the business is at. Ultimately, this number will tell if the product or service is actually useful and how it can keep improving or why it should change. 

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Knowing the NSM will foster trust and confidence in your team players, and it encourages them to stay on top of their tasks.

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Follow your guide

It is important to remember that the NSM is a guide.

It should not become a stress factor or a number everyone in the company is obsessed with. It is meant to keep your team aligned and working towards the same goal and to understand what’s the overall performance of the company. Do not let the NSM become a dictator.

The main benefit of a clear NSM is that it is a reflection of your customer success. It is a key tool to avoid churn rate and increase customer retention while following the company’s mission.