For your company to experience its full growth potential, you need to identify your North Star Metric.
The North Star Metric helps companies move past generating short-lived growth and focus on creating retainable long-term customer growth.
The North Star Metric (NSM) is essentially another name for the one metric that matters—it’s a specific metric that best captures the core value your product delivers to customers. Focusing on and optimizing company-wide efforts to improve your NSM is key to driving long-term sustainable growth in your company.
Here are some examples of North Star Metrics from familiar companies:
Identifying your North Star Metric can be the difference between becoming a great company or one that’s on it’s way out. Identifying it also helps you understand your customers and product better.
Growth advisor and investor Buckley Barlow believes a major reason Myspace failed and Facebook succeeded has to do with the NSM they focused on. Myspace focused on Registered Users—a vanity metric—as their NSM. At the time, Facebook focused on Monthly Active Users as their NSM. The different focus led Facebook to succeed where Myspace failed.
Social media apps should be aware of the changes in registered user numbers. But Myspace failed because Registered Users only shows who has signed up. It doesn’t show if users are continuing to use the platform (a sign they’re continuing to receive value from it). Users who don’t get value from a product will stop using it and churn. By tracking Monthly Active Users, Facebook could monitor changes in user numbers and see which users found value from using the platform.
“It is important to keep in mind that the North Star metric is not an end solution in and of itself. A key metric gives focus on your growth efforts and can serve as a seed to grow a company ecosystem that gives you deep insight into your customer’s behavior and creates levers to drive future growth. It leads to understanding your customers and unifying your team on how to better bring value.”
Correctly identifying your NSM requires understanding your customers, including what kind of value they get from your product and how they use your product to get that value. With that information, you can engineer a better product to help customers get the value they’re looking for which will increase customer lifetime value, decrease churn rates, and increase revenue and growth.
As mentioned earlier, correctly identifying your North Star Metric requires understanding the value customers get from your product and how they get it. To do this, examine how active users and loyal customers engage with and use your product. Understanding this will help you identify which metric best embodies positive growth in this area. That metric will be your NSM.
Keep in mind that you might not select the correct NSM for your company on your first attempt to identify it. You may have to select a few different metrics and work backward, identifying other metrics that would support it in an attempt to figure out what is the best NSM for your company at this time.
In a blog post about growth, former Product Manager for Growth at GrowthHackers Hila Qu shared the following five points to keep in mind when selecting your North Star Metric:
While your North Star Metric is typically one metric, it can be difficult for each department and team to grasp how they can influence that metric. That is why each department should identify their own NSM which supports the company-wide NSM.
A correctly chosen NSM represents the end result of the collective interdependent efforts of each department, team, and employee at your company.
Once you’ve identified your NSM, seek to understand which actions each member of the company should make to get the metric trending in the right direction. Each department should identify its own NSM to focus on and identify additional supporting metrics. Doing this will help each person in the company identify which metrics they should track on an individual level.
Identifying and working towards your NSM does not free you from tracking and working to improve other metrics. (Sorry if you got your hopes up.) But it does empower you to achieve break-out growth by helping everyone at your company focus on the right activities and make the right decisions.
It’s important to recognize that your North Star Metric should change as your company grows and your industry evolves.
Facebook is a good example of this. In the early days of Facebook, Monthly Active Users was their NSM. As time passed, competitors entered the space, and the industry changed, Facebook realized it needed to continue competing. Daily Active Users became their new NSM. As the industry continues to change and competitors like Snapchat track how many Hourly Active Users it has, Facebook’s new NSM might change again to Hourly Active Users.
As your company and industry grows and changes, be prepared to modify your NSM so it fits new industry demands.
Different platforms are used by each department and at each level of your company to help employees effectively do their jobs. You need a tool that can help you take data from each of those platforms and turn it into visual metrics so you can monitor your North Star Metric and all the other metrics you will be tracking to help you drive the growth of your NSM.