The North Star Metric can be your way to find growth for a company. If you read our last blog about the Pirate Funnel (wait, you didn’t?), you should know that the very first thing that has to be clear in your growth hacker mind, is what your North Star Metric will be.
Buckle up, cause you’re about to find out:
- How to define your North Star Metric
- Why it is a life or death matter for your organisation
- All the best practices
- Why the NSM is different from an OMTM
*and keep reading to find out what all these acronyms mean.
1. What is the North Star Metric?
If you ended up here, chances are you already have a (vague) idea of what a North Star Metric is. We think the name really says it all: it’s the one, ultimate metric that clearly defines the overall performance of a company. This number is the best reflection of the value delivered by your company.
You could see it as the most important key performance indicator (KPI); the primary difference is that KPI’s are used to measure how effective you are at achieving your business objectives, while metrics describe the status of business processes.
Why is the north start metric important?
We cannot stress the importance of this enough: define your North Star Metric!
Too many promising businesses lost their way due to a badly -or even non-defined- NSM. It is The metric. The one everyone should be looking at. Sean Ellis, the godfather of growth hacking, deemed the North star Metric as the most powerful concept for driving growth. Convinced yet?
So what does the NSM look like? For Spotify, it’s the time spent listening and for AirBnB, the number of nights booked. It’s the unit of measure for the value you are delivering, and consequently, for your overall success. And in case you were wondering, profit cannot be a north star.
Profit is what you get from your customers, a north star is what you give them.
NSM famous use cases
The following examples showcase how more famous companies have defined their NSM.
- WhatsApp: ‘Number of sent messages’
- Picnic (grocery delivery): ‘Monthly groceries delivered on time’
- Hubspot: ‘Active teams per week’
- Amazon: ‘Amount of purchases per month’
- Slack: ‘Time spent listening’
NSM examples per sector
- Customer lifetime value (CLV)
- Average order value per day
- Number of monthly or weekly customers completing their first order.
- Retention rate over a set amount of years.
- The Monthly-Recurring Revenue (MRR).
- Retention rate: how many customers come back to buy more within x amount of time.
- Number of messages send daily.
- Number of daily active users.
- Total time consuming content.
- Total reading time.
- Total play time.
- Amount of videos watched per user
- Retention rate.
- Total of assest under supervision.
- Number weekly users.
Starting to get the picture?
The North Star Metric is relevant for every step in the Pirate Funnel, from Awareness to Referral. The key is to show as clearly as possible the amount of value your business is bringing to your customer.
It’s a cycle: when your NSM grows, so will the value perceived by your customers, and an increase in customer value is directly linked to the AAARRR Funnel: happy customers will probably use your services again and again (Retention) and ultimately, tell their friends and family to also start using your products and services (Referral).
2. How do I define my North Star Metric?
A good North Star Metric meets certain criteria. It has to:
1. Focus on what brings the most value to your customer
What value do your customers want to get out of your product? Find the moment in the process where customers achieve the highest ‘level of satisfaction’.
Let’s take Quora as an example. A possible NSM for them is ‘Number of questions asked’, However this is not the point where users achieve the most value. Instead, Quora’s NSM is ‘Number of questions answered.’ As this metric focuses more on the value Quora brings to the customer.
2. Express value to the customer, not the company:
Many companies focus on metrics such as numbers of orders or revenue. Doing this, you are not focusing on delivering value to your customers, as a result, you won’t be able to spot ‘leaks’ in your company properly. For instance, when an e-commerce store uses ‘Number of orders per month’ as their North Star Metric, there is no focus on the way the orders are delivered to the customer. A better NSM would be ‘Number of orders without any complaints’.
By adding this delivered value to the NSM, you shift your focus from quantity to quality which in most business cases, is where your focus should be.
3. Your North Star Metric is measurable and time-bound:
Degree of customer satisfaction is not a measurable metric. What is, however, is the amount a certain action is undertaken.
Time is also an important requirement since you will have to compare periods in time to see whether you grew or not. Don’t make these periods too long though or you won’t be able to respond to change quickly enough. Most companies compare their NSM with the previous period every month.
4. Your North Star Metric should impact every step of the Pirate Funnel:
When one step in your funnel grows, your NSM should also be growing. This is why you have to choose a metric that applies to every step.
When you apply these steps into defining your North Star Metric, you and your team are correctly aligned to focus on long-term business success.
3. The difference between NSM and OMTM
Now, are you getting the hang of it? Don’t stop reading then! We have dropped the term OMTM a few times now. OMTM stands for One Metric That Matters. “Is the NSM a same thing as an OMTM?” if you found yourself googling this, no worries, you couldn’t be less alone. Sprints and Sneakers to the rescue.
The North Star Metric is shared by the whole organisation and is the common thread that drives every effort. It is the point to which all the energy is directed.
The One Metric That Matters, on the other hand, are different for every phase of the funnel and they work in function of the NSM. They are what each team has to focus on in order to realise growth over a limited period of time (usually a few months).
To keep it short, hierarchically speaking, the OMTMs work for the NSM. Concluding, departments seek the One Metric That Matters for processes they think are able to improve the North Star Metric the most in a given period.
At Sprints & Sneakers we can’t do without it.
We hope that you have a good foundation of how to find your North Star Metric and that you understand the importance of it.
If still feel in doubt of how to use it, reach out! We are more than happy to help you grow.