Choosing your North Star Metric
Every business owner wants to know if their operations are headed in the right direction. But sometimes it’s difficult to pinpoint which areas are thriving and which need improvement.
Choosing your North Star Metric is a great place to start.
It’ll help you better measure your progress, reflect on your customer value and ultimately boost your revenue.
What is a North Star metric?
A North Star metric is a measurement that accurately predicts a business’s success — specifically its long-term potential. One of the key aspects of North Star metrics is that they may vary among businesses.
What one business deems its North Star metric might differ significantly from that of another. However, your business isn’t excluded to only one metric.
Most large businesses have one to three North Star metrics, but smaller operations are fine with just one. It all depends on the business’s type, size and goals.
A good North Star metric will accomplish these actions:
Lead to revenue
Reflect customer value
Additionally, business owners rely on a North Star metric to determine goals and other more specific metrics for individual product teams. The metric helps you define the relationship between your customers and your products. And once you define that relationship, you can point out any gaps or weak areas for your product team to improve and thus better satisfy customers and earn more revenue.
North Star metric examples
As stated above, a North Star metric varies depending on a business’s size, type and goals. But the key aspect is that it isn’t the same for every business. It can be, but every business and its teams have their own sets of goals to reach, even if they’re competitors.
One example is a tech North Star metric — Facebook. The social media platform’s North Star metric is the number of monthly active users. By contrast, Airbnb’s metric is the number of nights booked.
Depending on your area of business, let’s say sales engagement, your North Star metric could be the number of new subscribers or the number of new accounts opened.
Or let’s say a business like Instacar wants to focus its North Star metric on new user activation. The number of weekly users completing a first order could very well be its ideal North Star metric to indicate future revenue.
Or, an eCommerce North Star metric might be the number of mobile orders delivered. An eCommerce business might have a current strategy focused on increasing orders through its mobile app, with customers having a satisfactory buying experience. This could mean no returns, easy payment methods and generally no complaints.
A business-to-business (B2B) north star metric or a software as a service (SaaS) North Star metric might rely on HubSpot or Dropbox. This North Star metric could be four active users in week two after starting a trial account. This metric allows the B2B company to determine whether free trial accounts are useful, or in other words, whether the strategy turns leads into customers.
Why choosing a North Star metric is important
Choosing a North Star metric is important because it helps you better understand your business’s overall position. Consider it a sort of bird’s-eye view.
When you can visualize where things currently are, then you can determine what’s doing well, what’s not doing so well and what could use a nudge in a different direction. This not only sets you on a smarter path to success but also improves employee retention.
Your team will have a better understanding of the business at large as well as where it’s going. What employee wouldn’t want to be at a business that’s growing successfully on the up and up rather than at a standstill? Reduced turnover keeps your business on stable ground so you aren’t constantly training new members.
North Star metric framework
Any North Star metric should consist of two parts:
A statement explaining your product or business vision
A metric representing the key measure for achieving your vision
Once you have a vision, you can determine the metric(s) you want to focus on. Most businesses focus on one of three:
Transaction — the number of commercial transactions users or customers make on your platform
Productivity — the number of valued digital tasks customers can perform on your platform or product
Attention — the amount of time you can engage customers with your product or on your platform
So, you have your vision and metric and now you can start strategizing.
How to define your North Star metric
Now that you know what a North Star metric is, let’s explore how to define yours. The most important aspect to consider when determining your North Star metric is the game you want to play, or in other words, the area(s) you want to focus on.
There are generally six categories of North Star metrics. This list represents the most to least common ones:
Revenue — the amount of money you’re bringing in
Customer growth — the number of customers your business has
Consumption growth — how often customers use your product
Engagement growth — the number of active customers you have
Growth efficiency — the efficiency of how much money you earn vs. spend
User experience — how engaging or easy your product is to customers
Most businesses focus on revenue because increased profit is the most noticeable indicator of growth. But examining your revenue balance sheets will ultimately help you determine whether you're meeting your desired profit numbers.
Taking a look at the back end of your business will also give you clarity on where there’s room for improvement. This could mean data showing your number of product users or how long they stay on your site.
North Star metric vs. OKR
So, you might be wondering what the difference is between a North Star metric and objective and key results (OKR).
Well, OKR is a method that synchronizes a business’s goals on an individual level to a global scale. OKR helps businesses determine and set goals on a quarterly basis.
An OKR file has four categories:
Global — These are large-scale business goals decided on a quarterly basis.
Units — A business’s departmental leaders will decide which goals they’ll take on and decide which teams will help them achieve those goals.
Teams — Teams will determine the direction they want to take and which projects will help them reach a goal.
Persons — Each team member will determine which project they can undertake to help achieve the overall goals.
A North Star metric helps your business stay aligned with its OKR. Without a clear vision determined by OKR, it’s infeasible to decide your North Star metric. In other words, a North Star metric and OKR aren’t synonymous, but they work with each other to help goals remain clear and to know what to measure when working towards those goals.
When to adapt your North Star metric
Before adapting a North Star metric, your business must have the right culture and infrastructure in place.
You need to ensure you have aligned expectations and punctual communication within your business before moving forward with your North Star metric. If there’s no willingness to prioritize the business (its team, goals, and success), then there’s no use in working towards your North Star metric.
For example, if you work for a commission-based sales business, sales teams and their compensation might present a conflict of interest when working towards a collective goal.
The bottom line is to ensure everyone on your team has clear responsibilities, is collaborative and motivated when tending to those responsibilities and has the common goal for the business to excel.
When you think about it, if a business isn’t successful, then that usually means its team isn't, either. And who doesn’t want to be successful?
Achieving your North Star metric allows you to effectively scale your business. But to do that, you need to have the right tools in place.
Sign up for a free Global Business Account with Airwallex today to imrpove your profit margins, streamline your finances and push into new markets. You’ll notice your North Star metric becoming more and more attainable.
Related article: How to calculate burn rate
Supercharge your eCommerce capabilities with free access to Merch...
10 signs your finance team is going through global expansion