What is a North Star metric?

A North Star metric is the one measurement that is most predictive of a company’s long-term success. To be a “North Star,” a metric must do three things: lead to revenue, show customer value, and track progress.If a metric meets the criteria, the company should grow sustainably if every department improves it.

Why is a North Star metric important?

To have everyone in a company work towards a common objective, teams utilize North Star metrics. Unbelievably, 90% of the world’s data was created in the last few years, which results in endless analytical opportunities, enabling every department, team and even individual to chase their own metrics. This is problematic because, if every team assigns a goal to itself, they will end up working at cross purposes and wasting resources. The author of the phrase “startup investor” Sean Ellis, created a North Star metric with the intention of minimizing administration work, meeting hours, and enhancing productivity by aligning the team towards one singular goal: growth. The North Star lies directly above the Earth’s Northern pole, and this term is to some degree figurative. In a world of complex business models, alongside multiple North Star metrics, any North Star metric is made up of sub metrics. A company could not only survive, but thrive with a single metric of recurring revenue. A North Star metric is an exercise meant to turn complex strategies into simple ones that everyone in a company can remember, comprehend, and act on.

When pyramids were built by Egyptians, the planet had Thuban as the North Star, which has now gone out of alignment. Just like Polaris will eventually do. Companies are allowed to change or amend their North Star metrics as needed, to ensure they are accurate.

Advantages of having a North Star metric

A North Star metric is a measure of output that keeps the company focused in all its pursuits and operations. Essentially, it provides a single metric that serves as a point of focus to ensure that every aspect of the business is catered in a manner that serves its core purpose.

Some benefits of having a north star metric are:

1. Alignment Having a North Star metric enables and ensures that a company and all of its employees especially the different teams are working towards the same overarching business objective despite everyone having their own respective sub-goals and metrics.
2. Transparency Due to the fact that a North Star metric can be developed from the growth of the company itself, it helps give a level of assurance to all employees concerned regarding the company’s well-being and any foresight powered by fear that comes with it.
3. Customer Focus
   Your north star metric revolves around the number that best encapsulates the value your business provides to customers. This metric helps you stay focused on optimizing customer experience, which in turn, improves revenue and retention.

By ensuring alignment, transparency, and accountability across the company, your north star serves as fuel to the growth engine. It’s the glue that binds together various individual targets and goals from many different teams towards a singular purpose; the success of your business.

North Star Metric versus The One Metric That Matters

Confusing “The One Metric That Matters” (OMTM) as a North Star metric is quite common because they are often used interchangeably. Unlike OMTM, which is time constrained to two to six months, a north star metric gives long term guidance for analyzing a business.

While keeping projects on track and being time bound can be detrimental, it works wonders alongside north star metrics; when combined, they help foster goals and success in the short term.

How a North Star metric works

In practice, a North Star metric is usually subdivided to each person’s level to take ownership and responsibility on their daily actions. Many of those sub-metrics are actionable and team specific so the individual members are able to see the impact of their actions in context of the North Star.

Consider, for example, an e-commerce company. Its North Star metric is defined as the “number of new customers purchasing each week." A buyer of the company could assist by increasing sales of a particular category that they manage, whereas a web developer would do so through optimizing page load time. They both contribute, just in their own ways. North Star metrics must also capture the customer journey and gauge if users’ journeys are satisfactorily completed. For the case of the e-commerce company, purchases are made by buyers which means that they have completed their journey, and therefore, improving parts of the journey such as discovery, browsing, and checkout accelerates customers€™ getting to the value and earning more revenue.

Examples of North Star metrics

E-commerce

• Number of weekly customers completing their first order

• Value of daily purchases

• Customer lifetime value (CLV)

Consumer tech

• Number of daily active users (DAU)

• Number of messages sent per day

• Retention

B2B SaaS

• Number of trial accounts with over 3 users in their first week

• Percentage year-two retention

• Monthly-recurring revenue (MRR)

Media

• Signups and retention

• Number of daily active visitors

• Total read time