North Star Metric
What is the North Star Metric?
A north star metric is the most important metric for your business that is determined by you. It is the main metric that measures the success of a business and helps drive its growth.
It is determined by the internal teams of a business and it is selected among all the metrics like the one that benefits the company most when it improves. Using a single (or in some cases 2, at most 3) metric as your success measurement can benefit you in a few ways.
First, it can increase the accountability among your business. Because it is a pre-determined metric, it's connections to all departments of the business can be figured out and this can help designate tasks for these departments. For example, if the north star metric is revenue (which can very well be, but it is not suggested) then the marketing department is responsible for bringing in more customers while the product team ensures that users' needs are met, so they don't churnWhat is churn? Churn refers to a customer cancelling their subscription to your products or services. It is a common metric among especially SaaS(service as a subscription) businesses. Churn exists….
Second, it can give everyone in the company a goal and a vision to be aligned under. Every department and employee knowing what the company is trying to achieve is especially important if contribution from everyone is expected.
And last, it can help track the progress of the business over a period. If the north star metric is the revenue, and the goal is getting revenue to a certain point, the progress to the goal can actually be tracked and each time period can be examined to see how events that occurred during that period affected this revenue.
How to determine the North Star Metric
To find a north star metric, a company has to first find what outcome will be the most valuable for them and then find out whether there is a way to track this outcome.
The first step in finding the north star metric is to sit down and evaluate what success refers to throughout the company. Collecting different ideas from different departments can help in finding a metric that is of value to every team. Does everyone value the number of active users, or revenue, or the new users acquired?
Whatever comes out of these conversations must be collected for further evaluation.
Second step is finding the common points in these ideas. Putting related ideas into groups can be helpful, for example churn rate and retentionWhat is retention? Retention refers to a customer continuing to use a business' product or a service and to pay for the said product or service. It is a key… rate and revenue can be the members of a group while new users and active users can be in another group.
At last comes the most difficult part, this is where the most important evaluation and a conclusion is made. A single metric(or 2-3) should be selected to act as the company's success measurement but if chosen wrong, months could go to waste. It is best to prioritize metrics based on users' interactions with your product because these metrics are tied to nearly every department throughout the customer's journey.
What are some North Star Metrics for Different Companies
There are a number of north star metric examples from big companies that can be mentioned and examined further.
First is Airbnb, and they track the nights booked as their north star metric. This metric is deeply intertwined with both revenue(as more nights mean more commission taken) and user interaction(the more nights booked, the more users are active).
For Facebook it was once the number of users who has added 10 friends within 7 days(which is also their aha moment). This metric touches different teams but the majority of the responsibility is on the shoulders of the customer successWhat is Customer Success? Customer Success refers to the approach that has your company in a position where it ensures that each customer is successfully connected to their desired outcome…. team. Later Facebook changed their north star metric to Daily Active Users; as the number of active users is increased the achieved value from the product improves and users become more engaged. And it also becomes interesting for Facebook's revenue-making functions such as Ads, the more users login, the more ads are distributed.
And for Quora, it is the number of questions answered. This might sound like an unrelated metric, but it connects to many aspects of the platform. First off, the more questions a user answers, the less questions stay unanswered and more value the platform offers. And second, it also is closely related to metrics such as daily active users and depth of use.
It can be anything from revenue to the number of users who have bought a premium plan, or the total word count of the mails created inside the platform. For every company, it has to be something that can measure its success.