In the night skies of the northern hemisphere, the North Star has long helped navigators find their way. The business world has adopted the metaphor of the North Star as a guiding principle, implementing it as a key metric to assess a company’s health and growth. Here’s how you can establish a North Star metric to guide your business toward success.
What is a North Star metric?
A North Star metric (NSM) is a single metric a business can use to measure its long-term success. For instance, Facebook’s North Star metric is monthly active users, Amazon’s is number of purchases per month, Uber’s is rides per week. In each of these examples, the metric serves as a quantifiable measure of revenue-driving growth.
Typically, a company should have only one North Star metric to ensure a single-minded focus. But a North Star metric shouldn’t be the only number you use to measure your company’s long-term success; in fact, you can and should have other key performance indicators (KPIs) to track your operations. Think of your North Star metric as the guiding light for all these other metrics. For instance, with Uber’s North Star metric of rides per week, other KPIs could be the number of new riders, number of repeat riders, and number of rides per week with five-star reviews. All of these KPIs contribute to the goal of increasing the number of rides per week.
How can a North Star metric help your business grow?
- Offers a measurable view of company growth
- Focuses your company on customer value
- Increases efficiency
- Offers transparency for employees
Sometimes it’s hard to pinpoint the correct North Star metric that indicates long-term company growth and user/customer satisfaction. When considering a North Star metric, Derek Gleason, content lead at Shopify says, “Avoid North Star metrics that are actually micro-conversions (e.g., sessions, email sign-ups, even # of orders if the AOV isn't taken into account).” Still, if you’re able to narrow down the correct metric, here are four ways it can help your business.
1. Offers a measurable view of company growth
Metrics are all about evaluating the health of your company—with the goal to continue on a path of sustainable growth. With a North Star, you can objectively and regularly evaluate your business model, putting yourself on the path for future growth.
2. Focuses your company on customer value
As your products and offerings change, it can be easy to lose sight of what’s really important. Centering your work on a North Star metric helps you focus on the value to your customers—whether that’s the number of orders delivered or the percentage of free users who upgrade to paid accounts. With a North Star metric in place, you can set benchmarks and aim for specific, measurable outcomes.
3. Increases efficiency
In a large organization, a North Star can help teams, product managers, and leaders to all communicate and coordinate effectively. By aligning teams on a singular focus, you can prevent them from accidentally working against each other.
4. Offers transparency for employees
As you add employees, a North Star metric can help show new hires what your company is all about, enabling you to build a team that believes in your mission and goals.
North Star metric examples
There are a number of common North Star metrics companies use to guide their growth—things like purchases per week or weekly active paid users. In the early stages of your company, you may want to focus on expanding your reach and building your customer base. In this situation, you might choose a North Star metric that emphasizes sales to first-time customers. Your other KPIs may be things like newsletter sign-ups and email click-throughs, but your North Star is the phase of the customer journey when new leads convert.
As your company matures, you may want to focus your efforts on turning everyday shoppers into high-value customers. In this situation, you may choose a North Star metric that’s based on how much each individual customer buys—their customer lifetime value (CLV). Your other KPIs may be the number of products purchased, average order value, customer acquisition cost, and customer retention, but your central focus is increasing CLV.
How to determine the right North Star metric for your business
- Consider your company’s core value for customers
- Select the best metric related to your core value
- Assemble a list of additional metrics
- Measure your progress
- Reassess and course-correct
Here are five steps to help you find the perfect North Star metric for your brand:
1. Consider your company’s core value for customers
Your company’s North Star metric should spring directly from the unique value you offer to customers. If your company’s core credo is that you offer speedy, efficient shipping, then a good North Star metric might be orders delivered on time, rather than daily active users on your website.
2. Select the best metric related to your core value
There are a variety of ways you can think about your core value in relation to your goals. Here are a few common types of metrics that you can consider when determining your overall goals:
- Revenue growth. Revenue growth is a great metric for businesses that want to increase their bottom line—it’s especially common among new businesses.
- Customer growth. Customer growth is a common metric used by new businesses that want to increase the number of people who try its product.
- Engagement growth. This usually is based on the number of active users. Engagement growth is a metric most common among businesses that offer services, rather than products.
3. Assemble a list of additional metrics
Your North Star metric shouldn’t exist in isolation. Once you have it, you can make a list of contributing KPIs that will help each department work toward the overall goal—things like social media click-throughs or deliveries fulfilled. For example, if your unique North Star metric is increasing the number of first-time customers, then your marketing department may choose a KPI like newsletter sign-ups. The company can then focus on converting these potential customers into buyers.
4. Measure your progress
Once you’ve defined the right North Star metric, it’s time to put it to work. Measure your progress regularly—whether that’s daily, weekly, or monthly, depending on the pace of your business—and take stock of fluctuations. Then you can tweak your operations and see what changes improve your North Star metric and which ones don’t.
For example, let’s say the North Star metric for your ecommerce business is on-time deliveries, and you find that late deliveries increase whenever seasonal orders surge. To keep your North Star goal on track, you could increase staff during peak seasons, experiment with different tiers of shipping at different price points, or even offer discounts during slow periods to incentivize spreading order volume.
5. Reassess and correct course
As your company grows and evolves, so can your North Star metric. A company in the early stages may be focused on rapid growth, and its North Star metric would reflect that—for instance, something like the number of new customers. As a company matures, it may want to focus on high-value customers, and its key metric would change too—for instance, to the number of repeat customers. In general, try to reevaluate your North Star metric at least once a year.
Derek Gleason, content lead at Shopify, reminds businesses, “A North Star metric is the best single proxy for overall business health, and all teams’ efforts should be able to move the needle on that metric.”
North Star metric FAQ
What is the difference between a KPI and a North Star metric?
A key performance indicator (KPI) is a specific metric your company uses to assess its progress, while the North Star metric is the leading indicator to measure your success—think of it as your key KPI. Your company can have many KPIs, while it will typically only have one North Star metric.
Can a company have more than one North Star metric?
Just as there’s only one North Star in the night sky, a company should have only a single North Star metric, because its purpose is to keep you focused on one overarching measure of success. If you have multiple North Stars, different departments in your company might work against each other or duplicate efforts.
Does every business need a North Star metric?
Not every business needs an explicit North Star metric—for instance, a sole proprietorship with a focused founder may have all the direction it needs without worrying about the North Star metric framework. However, even if your business doesn’t explicitly use a North Star metric, you will still need a focused, measurable strategy for long-term growth.
Can a North Star metric change as a business evolves?
Your North Star metric can and should change as your business evolves. A company in the early stages may use a rapid growth strategy—with a North Star metric like the number of new customers—while a mature company may shift to focus on high-value customers, such as those that make repeat purchases.