Tracking metrics and using them to predict and improve business performance is an essential skill for entrepreneurs. But with so many numbers to choose from, it can be hard to know where to start.
Here, we’ll be introducing you to a concept that makes this process a whole lot easier: North Star metrics. By the end of this quick guide, you’ll know what North Star metrics are, how to identify them, and how to use them to track and improve your business performance.
What Is a North Star Metric?
A North Star metric (NSM) is a key performance indicator (KPI) that provides the clearest representation of your business’s overall health and progress. In other words, it’s the one number that you should always keep your eye on, because it gives you the best insight into whether your business is on track.
NSMs are context dependent, meaning that they vary from business to business. There is one characteristic that unifies them all: they reflect the value that your customers get from your company or product.
For example, Airbnb’s NSM is “nights away booked” because it captures the value that Airbnb provides to customers (a place to stay). Spotify’s NSM is “time spent listening” because it captures the value that Spotify provides to customers (music streaming).
This unifying characteristic is the reason metrics like revenue are bad NSMs. Revenue reflects what a company charges for its product, not the value that the product provides to customers. A good NSM is a leading indicator of future revenue, not a lagging indicator.
Why Are North Star Metrics Important?
NSMs are important for three main reasons:
- Alignment: NSMs help to align all members of a team around a common goal. This is because everyone can easily understand and relate to the NSM, as it captures the value that the company provides to its customers.
- Monitoring and Communicating: NSMs make it easy to track progress and identify areas of improvement. They also provide a simple way to communicate progress (or lack thereof) to stakeholders.
- Customer Focus: NSMs keep businesses focused on providing value to their customers, rather than simply making money. This customer-centricity is essential for long-term success.
How to Identify (and Use) Your North Star Metric
Now that we’ve answered the question “what is a North Star metric?”, it’s time to learn how to identify your own NSM.
There isn’t a hard-and-fast process to follow here. Instead, it might be helpful to start by answer a series of guiding questions:
- Q1: What is the value customers get from your company?
- Q2: When do customers get this value from your company?
- Q3: What metric tracks this value as it’s delivered?
- Q4: Is this metric measurable? (Y/N)
- Q5: Does this metric apply to all customers? (Y/N)
- Q6: Does this metric reflect company-wide successes? (Y/N)
Now, let’s give these guiding questions a try, using Airbnb as an example:
- Q1: What is the value customers get from your company? Booking nights away from home all around the world.
- Q2: When do customers get this value from your company? When they book their stay at an Airbnb.
- Q3: What metric tracks this value as it’s delivered? Number of nights booked.
- Q4: Is this metric measurable? Yes.
- Q5: Does this metric apply to all customers? Yes. When the number of nights booked rises, it means that people are using Airbnb more often. This is good for the people booking as well as hosts.
- Q6: Does this metric reflect company-wide successes? Yes. When Airbnb hits a high number of nights booked, it means that multiple departments (e.g., marketing, product development, etc.) are succeeding.
Need Help Defining Your North Star Metric?
Defining your North Star metric is an important part of growing your startup, as it communicates why your business needs to exist to your customers and employees.
Need help with defining your North Star metric? Growth Mentor can connect you with the perfect mentor or coach. Members get unlimited 1-on-1 calls, so you’re free to unlock your full potential!