What is the North Star Metric? Why does it matter? And how to define it?

To track a business’s growth is to track numbers. However, the catch here is that there are so many numbers representing different aspects of the business. So which number should you track to check business growth? You might say matter-of-factly that revenues are the number any business should look for. However, revenues are the end-result of a business’s marketing and sales efforts. It might tell you whether your efforts were fruitful or not, but since it’s a very broad metric, you might not be able to identify the particular metrics responsible for growth or losses. This is why the North Star Metric is very important to a business.

What is the North Star Metric (NSM)?

The metric acquires its name from the guiding star Polaris that shines in the night sky. Just how Polaris is the star you should track to navigate through the surroundings, the NSM is what you should look for to track the growth of your business at a particular time.

The NSM is a powerful concept that has emerged recently in Silicon Valley companies that achieved breakout growth. The metric helps companies to shift their focus from superficial, surface-level growth metrics, towards a metric that best captures the core value of your product/service delivery to consumers.

Why do NSM matters?

The NSM probably isn’t the most striking number like free Trial signups, or a vanity metric like Facebook likes or Twitter followers. Because a thousand likes per post or getting a hundred followers per day doesn’t necessarily indicate business growth. Rather, the NSM is what prompts your consumers to take action to buy your product/service or refer your business.

A great case of why you should clearly understand your NSM is Stripe, a PayPal competitor that offers online and mobile payment solutions. According to Stipe’s CEO Patrick Collison, their NSM isn’t monitoring the average number of transactions per user, as most would think. He pointed out that the vast majority of Stripe’s users are people who set up an account, explored it a bit and left. Because they didn’t have any online transactions to handle! Which means, the average number of transactions per user is zero. However, this doesn’t mean that Stripe isn’t growing. Instead, the NSM that they focus on is a different number, one that actually correlates with user retention.

If you optimize your efforts to grow your NSM, you will be able to drive long-term, retained customer growth.

How to define your NSM?

Before you define your NSM, you need to do away your presumptions like “I’m not a SaaS company or a start-up, so knowing my NSM may not make much of a difference to me”. If you care for the long-term growth of your company, then this metric is for you!

When you start to define your NSM, focus on the single specific metric that forms the core of your business. A metric that helps you track the value you deliver to your consumers. A metric that correlates most closely with the ‘Why’ of your business. It may happen that you notice more than one metric, but try and zero down your NSM to a single metric.

Ask yourselves these questions to find out if you have identified the true NSM of your business.

1. Does the metric reflect your consumers’ experience of the product’s core value?
2. Does the metric reflect a level of engagement and activity?
3. Is this the one thing that indicates your business is moving in the right direction?
4. Is it easy for your team to understand?

A Few Examples of NSM

Here are some examples that will give you a clear idea of NSM. Airbnb’s NSM is “nights booked” as it captures the value delivered to the guest as well as the host. Elsewhere, Facebook’s NSM is “daily active users”, which helps them optimize everyone’s feed and deliver more value to users. Quora’s NSM is the number of questions a user answers and What’s App’s NSM is the number of messages a user sends.

You must also know that NSM isn’t a metric set in stone. It will change over time depending upon your business goals.

Conclusion

Your NSM is vital for aligning your organization to drive rapid and sustainable growth. It helps your company to make more focused efforts rather than being all over the place.

If you are ready to commit to breakout growth, we at Amura would be willing to help you. We are a Growth Marketing agency with a team of industry experts, and we have been helping our clients grow for the past 10 years.