A North Star Metric (NSM), like the North Star which indicates the direction to the navigator, guides the company towards its own, unique and absolute objective. This indicator aims for long-term growth, by measuring the value brought to the customer by the product or service offer. The NSM is in a way the mother KPI of all the performance indicators of the company: it is by improving its conversion rate, its retention rate or its turnover that the company is continually approaching its final objective, that is to say its sustainable development.
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What is a North Star Metric?
The North Star Metric is the indicator that informs the company about the value that its customers attribute to the product or service that it markets. The better the offer is valued, the better the growth potential. Each company defines its own North Star Metric, and aligns all of its teams to it.
The North Star Metric differs from other business performance indicators:
- No set formula exists to calculate the NSM, each company defines its own North Star Metric based on its activity.
- The NSM designates the absolute course of the company, it does not stop at intermediate objectives. Intermediate objectives, on the other hand, contribute to achieving the MSN. This makes the North Star Metric a holistic approach to setting business goals.
- The North Star Metric is not specific to a company department: each team aims for the same North Star Metric, and uses the ad hoc KPIs for this purpose.
Illustration: the newly created social network, financed by advertising revenue, is working to define its North Star Metric with regard to its own economic model. Instinctively, the company chooses the number of subscribers to the social network, then prefers the number of active users. This second choice is more strategic. It is indeed the active use that customers make of the platform that appeals to advertisers; user engagement also demonstrates the value they place on the social network: they are inclined to remain loyal and to recommend the platform to those around them. As an intermediate objective, the company of course aims to increase the number of subscribers: this indicator, for the use of the commercial team, contributes to achieving the North Star Metric but is not sufficient to ensure growth. of the company over the long term. The user must be registered and active.
Examples of North Star Metrics
- The North Star Metric of Spotify and Deezer: listening time. Music streaming services share one overarching goal: to maximize the time users spend listening to tracks on their platform. This is how companies assess the quality of their service, and it is by continuously improving this level of quality that companies ensure sustainable development. The more the user listens to music, the more he appreciates the service: he remains loyal to it and recommends it. Platforms, therefore, become attractive to prospects and partners, in line with their business model.
- The North Star Metric of Facebook and LinkedIn: the number of active users per month. Social networks have distinct economic models, but an identical NSM: to maximize not only the number of subscribers, but above all the number of subscribers who actually use their platform, regularly. The more the use of Facebook increases, the more the company increases its advertising revenue; for LinkedIn, it’s an opportunity to sell active users more paid features.
- The North Star Metric of many e-commerce sites, including Amazon: the number of orders per customer per month. The same customer who orders regularly demonstrates the value provided by the e-commerce service. The customer is loyal, and tends to recommend the site: the brand gains notoriety, and develops gradually. Note that the North Star Metric of the e-commerce site can also be the number of orders without return or after-sales service. When the site markets products that do not justify recurring purchases, large household appliances for example, the same de facto customer does not order regularly. The customer, on the other hand, demonstrates his satisfaction, and the value he places on the brand, by refraining from any complaint.
The Importance of a North Star Metric
The North Star Metric, insofar as it measures the value that customers derive from using the company’s product or service, focuses on customer satisfaction. Ultimately, however, it is this customer satisfaction that determines the sustainability of the company. Paying attention to financial metrics, such as break-even point or WCR, is essential to generate short-term growth. By extension, the North Star Metric takes a long-term view, and it is the enduring quality of the company’s offering that sets it down over time.
On an organizational level, the North Star Metric helps align teams on the single, common goal for the entire company. The objectives specific to each service are intermediate: we speak of OMTM for One Metric That Matters. For example: sales team needs to increase sales, marketing team needs to improve conversion rate, customer service needs to reduce CES. Defining a North Star Metric allows each team to take a macro view when fulfilling its own objectives: the entire company is thus following the same course.
Illustration: the blog’s North Star Metric is the reading time of articles published online; the marketing team implements a strategy to publicize the blog, the production team enriches the content with original information, the web designer designs an attractive layout; together, employees attract readers and enrich content; result: the reading time increases, the blog offers high advertising revenue opportunities in the long term.
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