A North Star Metric is essential if you want to reach your maximum growth potential. To grow long term, you as a company will need to develop a long-term growth strategy.
“Growth Hacking” often consists of rapid growth spikes, while it is of course much more important that you know how to retain customers in the long term, get ambassadors and turn your marketing into a well-oiled machine.
Your ‘North Star Metric’ should be at the centre of your growth strategy.
I recently noticed during a Growth Strategy workshop for one of my clients that the term “North Star Metric” is still very unknown.
In this article, I explain what a North Star Metric is and how you can find a powerful North Star Metric for your company, with which you can give your entire company new focus and energy.
In this article…
(Tip: Use the links below to navigate directly to the relevant chapter. Although I advise you to read everything in the current order.)
- What is a North Star Metric?
- Benefits of a North Star Metric
- 8 Steps to your North Star Metric
- North Star Metric examples
- FAQ about North Star Metrics
What is a North Star Metric?
The North Star Metric (NSM) is a metric that a company uses as a focus for their growth. This number best reflects the amount of value that your company brings to your customers. In addition, the North Star Metric gives direction to your company’s long-term growth versus short-term growth.
Well-known North Star Metric examples are:
- Spotify = ‘Time spent listening‘
- Airbnb = ‘Number of nights booked‘
- Facebook = ‘Monthly active users‘
- And below I’ve listed many more examples of North Star Metrics.
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.
No, “Revenue” is a bad North Star Metric!
“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.
The danger of turnover as NSM is that you are more concerned with extracting as much money as possible from your customers in the short term, while a customer who really feels the value will probably pay much more in the long term.
In a way is more revenue the result of a growing North Star Metric.
Benefits of the North Star Metric
A North Star Metric helps your company in a number of ways:
- Focus: 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. More about this in a moment.
- Clarity: 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, so you automatically make room to be busy with retention.
The end result will be that your business will grow much more efficiently, because you have more focus and that focus is also focused on long-term growth.
What is the difference between your North Star Metric versus One Metric That Matters (OMTM)?
These are the differences between the definition of North Star Metric and One Metric That Matters:
- North Star Metric (NSM) is the number on which your entire company focuses to achieve long-term growth during a period of several years to infinity.
- One Metric That Matters (OMTM) is the number on which one team focuses to achieve rapid growth for a period of 2 to 6 months.
So you see that there are four major differences between One Metric That Matters versus North Star Metric:
- Who: The North Star Metric is intended to be used by all departments, from customer service to development, as a number to keep improving. The One Metric That Matters is intended to be used by a single team of 3-6 employees as a number to improve in the short term.
- Timespan for result: The North Star Metric is intended for long-term growth and is used to grow your business over the coming decades. Your One Metric That Matters is meant to be project-based where you try to improve this number through fast experiments within a period of two to six months.
- Length of focus: The North You choose Star Metric when you are going to develop your growth strategy and you never actually change anymore, unless you adjust your offer to your customers. An NSM expresses the value to your customers and that only changes if your company changes direction in terms of mission/vision. However, your One Metric That Matters changes for a period of two to six months based on what you need the most attention for at that moment for your company. You choose a new OMTM again after you’ve significantly improved your previous OMTM.
- OMTM is supportive of your NSM: Which is not yet clear from the definitions of North Star Metric and One Metric That Matters is how these numbers relate to each other. In principle, an NSM is therefore your umbrella focus over a longer period and across multiple departments. Each team then chooses its own OMTM based on where they see that the NSM needs the most improvement and that the team can best contribute to the NSM. This team then focuses on this number until they see a different focus (OMTM) with which they can contribute more to the NSM.
Simply put, the One Metric That Matters is therefore a sub-focus of the North Star Metric.
8 Steps Checklist for a good North Star Metric
A good North Star Metric meets these eight criteria, because otherwise it can go wrong quickly: