What Is a Company’s North Star Metric?
A north star metric is a key metric that demonstrates the value consumers gain from a company’s products or services. It’s the metric a company determines is the single most important driver of success and it provides an initiative for the whole company to rally behind.
However, identifying your company’s north star metric can be challenging at first. For example, a rideshare app may think that tracking the number of app downloads would be a great measure of success.
However, a more accurate measure of value may be the number of miles ridden by users.
Unlike the number of app downloads, which gives us very little information, tracking the number of miles ridden by users reveals more about the value and use of the product. Therefore, the north star metric should be a key component to the company’s long-term success and sustainability. It should also give you actionable information you can use to grow your business.
What Is the Purpose of a North Star?
A north star metric has three primary purposes: it helps measure your customer value, it represents your product strategy, and acts as a leading indicator of revenue.
Measure Customer Value
A north star metric helps you measure how often your customers engage with your product, which allows you to measure your customer value. It should indicate whether or not customers experienced the true value of your core product. For example, a library would not want to choose how many active library cards their location has as a north star metric because it doesn’t reveal much about how customers use the library.
Instead, you would want to measure the number of books checked out, which indicates how customers are actively using their library cards.
By measuring how much time the customer has spent engaged with your product, you can see how much value the customer is getting and make important decisions about your core product line to help improve customer value.
Represent Product Strategy
Your product strategy is key to the success of your business. A product strategy should be well-defined and measurable to make it easy to track.
A good north star metric will capture your product strategy and show your progress in a form that’s easy to understand. A simple sales or profit chart will not provide enough information to guide your product strategy on its own without a solid north star metric.
Companies can use their north star metric to focus more clearly on the true purpose of the product and what value the customer is receiving from it, which can inform product strategy.
Act as a Leading Indicator of Revenue
Although your north star metric is not the only measure of revenue for your company, it should be a leading indicator of revenue. Simply put, if your north star metric increases, you can expect your revenue to increase as well.
It is essential to keep the north star metric’s relationship to revenue in mind when choosing one. For instance, simply measuring customer satisfaction will only tell you if your customers are happy, but it may not correlate to revenue. But customer referrals could be a measurement of both satisfaction and an indication of revenue.
Why Does My North Star Matter?
In many ways, your north star metric reflects the core values and voice, or internal mission statement, of your company. Your chosen north star metric should capture the purpose of your product and how it provides value to your customer.
When your north star metric performs well, your company is more likely to stay true to its original goal and core values. In addition to serving as a leading indicator of revenue, the north star metric should also directly measure positive impact on your customers.
In short, the north star metric matters because it tells the story of how successful your company is and gives you a clear picture of the sustainability and long-term outlook for your company.
Should a Company Only Have One North Star?
The number of north star metrics that your company has depends on the goals of your organization. Choosing one or two north star metrics helps to keep your evaluations simpler while still providing meaningful information.
When choosing a north star metric, the idea is not to over complicate your keys to success; just to find the key metrics that matter.
However, some companies have large footprints and have many different products and services that are not closely related. In these situations, it may be appropriate for different departments and teams to have their own north star metrics as long as they contribute to the company’s primary metric.
How Do You Choose a Good North Star?
When choosing a north star metric for your organization, make sure to use the right tools to ensure that your metric meets the following criteria:
- It expresses value.
- It represents vision and strategy.
- It indicates success.
- It is measurable.
- It is clear.
- It is actionable.
It Expresses Value
Your north star metric should be measuring the value you bring to the customer. A simple purchase or subscription metric is not enough to understand if your customers benefit from your product.
Your north star metric should capture what the customer uses your product for and the value it brings. Thishelps you better understand what keeps customers coming back.
It Represents Vision and Strategy
Your north star metric should represent the vision and strategy or long-term plan for your company. Getting clear on your vision for the company and the strategy you’ll employ to get you there is vital to setting you apart from your competitors. Then communicating that vision and strategy company wide will help employees perform their jobs with them in mind.
When you incorporate your vision and strategy into your north star metric, you’ll be able to measure how close you are to realizing that vision and how well your strategy is working. It also ensures your company stays true to its roots as it grows instead of losing its way in the name of chasing profits.
It Indicates Success
Your north star metric should always indicate the success of your company. It should go beyond just the purchase of your product and provide details about how it’s impacting your customers.
A product that sells well but doesn’t perform well will not have long-term success. Often success will tie back with sales, customer satisfaction, and other good indicators of business performance.
Make sure your north star metric indicates success to keep your long-term outlook sound.
It Is Measurable
Your chosen metric has to be measurable. A clearly defined north star will have values that are objective, not subjective. For example, tracking opinions or immeasurable data will not deliver reliable results.
When choosing and tracking your north star metric, make sure you select a metric that has readily available data.
It Is Clear
Your entire company must understand your north star metric and why it is essential to rally around. A simple and understandable metric helps employees keep their goals at the forefront of their minds during their day-to-day andensures the entire company is pulling in the same direction.
It Is Actionable
It’s critical to ensure that your north star metric is within your control and something that not only you can improve, but that every department can have a hand in improving.
Once you have chosen an actionable north star metric, your organization can create strategies and tactical plans to help improve your metrics.
How Can My North Star Drive Product Strategy?
The north star metric should be a driving factor for your product strategy. If you’ve picked a good metric, you’ll see what products and features truly benefit your customers. You’ll gain valuable insight into how your product justifies your customer’s investment, hopefully to their satisfaction.
With a clearer understanding of your product’s value, you can better shape your product strategy to improve on your delivery to customers. With your north star metric helping to keep your organization close to your core values, it’s an excellent tool to help shape your future products and keep your customers coming back.
The north star metric is a popular measure for innovative companies looking to improve their value to customers. The metric should be true to your company’s core values and not just a simple profit chart.
Your north star metric should be a simple, actionable measure that helps keep your employees driving toward your company’s success. Get started with measuring your north star metric with Kissmetrics.