A long time ago, sailors managed to orient themselves in the ocean thanks to a very bright star, which has the peculiarity of pointing north.
Today, navigators have far more sophisticated tools to find their way around, but companies have some lessons to learn from this distant past… and have you got your own North Star?
the concept of North Star Metric (NSM)From Silicon Valley, in recent years many companies have established themselves.
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The aim of this theory is to achieve sustained growth over the long term – in contrast to the old trend, which was to achieve exponential growth in the short term, which sometimes led to rapid bankruptcy.
To do this, we have established a unique indicator that measures the fundamental value a company provides to its customers: the North Star Metric.
Objective: To continuously improve our proposal to continue the development in a qualitative manner.
And, that’s cool, we explain how to manage your company’s growth using the North Star metric.
Definition of North Star Metric
A unique and quantitative indicator, the North Star metric represents the performance of your service or product on the market. Like the North Star, it is used for:
- guide decision making
- Priority
- Optimize internal and external processes
- create marketing campaign
- Develop a data-driven strategy
It is one of the most relevant metrics for defining the long-term success of a business. In fact, it focuses on the aspect of your business that reflects the true value you bring to customers.
To be effective, your North Star metric must have the following characteristics:
- express price
- Represent corporate vision and strategy
- Be actionable and quantitative
There is no single NASM. This varies by company and industry.
3 Examples of the North Star Metric
To better understand the concept of the North Star metric, here are 3 concrete examples that will definitely get you talking!
1. Spotify and Listening Time
How does the popular music streaming service Spotify measure value for its customers? Listening time! Here is his North Star metric.
The more time users spend listening to songs on its platform, the more Spotify grows, adds value and improves customer lifetime.
This indicator is very relevant and quite easy to calculate because few external variables affect it.
2. Moderate and Reading Time
Medium aims to redefine the way content creators think about digital publishing.
On the one hand, this platform provides readers with a new way to discover content, and on the other, it allows publishers to interact with their audiences differently.
For these reasons, Medium chose “total playing time” as the North Star metric. Like Spotify, this indicator indicates the added value offered to its users. When this time increases, the medium improves its growth and profitability.
3. Airbnb and Number of Nights Booked
Airbnb’s North Star metric is the number of nights booked. This indicator adds to the value provided to customers and platform owners. The more nights booked on the site, the more both parties gain and strengthen their loyalty to the site.
It also allows NSM Airbnb to project itself into the future by determining the average number of nights booked by its customers. Thus, with each new registration, the company can easily determine its lifetime value and calculate its long-term growth.
5 Steps to Defining Your North Star Metric
The choice of your North Star metric is based on 2 factors: your business model and your field of activity. Make sure your metric of choice drives revenue, reflects customer value and helps measure business progress.
To help you best define your NSM, here are 5 steps to follow:
1. Find the Moment of Customer Success
The moment of success is the result of your North Star metric. What do you consider the exact moment that the customer is acquired and begins its path toward satisfaction?
For example, for an e-commerce, a buyer may have 3 days to receive their order. And why not the moment of purchase? Because you are not yet sure of his satisfaction. If he doesn’t contact after-sales service after receiving the package, you can legitimately think the product is a good fit for him and define this period as “the moment of success.”
2. Find Additional Value for Customers
NSM should not only serve business. It focuses on the benefits it brings to your customers. A single action cannot determine this indicator.
For example, let’s take a tool like Dropbox. NSM is not the number of subscribers to the service, but the number of active users. That is, as many people store files in Dropbox, share them or edit them directly through the web version.
3. Calculate the Deadline
Your North Star metric should be measurable over time. This is the example given in the first point: e-commerce sets a specific day after receipt, to determine customer satisfaction. We talked about 3 days, but it could be more or less depending on the products sold.
To calculate the time relevant to your business, analyze the behavior of your current customers. In this example, e-commerce needs to evaluate the service requests received so far. On average, how long does it take for orders to be delivered to them?
4. Eliminate External Factors
As much as possible, your North Star metric should not depend on external factors. If it’s difficult, you’ll need to include it in your calculations.
Take the tourism sector itself. This is strongly subject to weather as well as political and health context. Therefore your NSM will fluctuate over a certain period of time… so ideally, it is to find an average formula, which takes these variations into account to get an accurate view of your growth.
Of course, this formula must exclude 2020 and 2021, which are too specific and singular to be representative of the development of a tourism business …
5. Check That Your North Star Metric Reflects Your Growth
At this stage, you should have found your NASM. However, one final check must be made: is it really related to your development?
For example, Facebook’s North Star metric is the number of active users. It’s logic ! Because if the number of active members increases, so will the advertising revenue (the more audiences to reach, the higher the bids and the quicker the brand will spend).
4 Tips to Grow Your Business with NSM
It’s okay to define the North Star metric. It is better to know how to use it properly to develop your development! Focus on 6 tips for success.
1. Rally Your Team Around the North Star Metric
As your company’s growth is based on the added value you bring to your customers, all your employees are concerned about: NSM is everyone’s business.
Indeed, the marketing department focuses on moving prospects through the sales funnel. Your sales reps are in the business of turning them into customers. Plus, your product manager makes sure to create an offering that meets market demand, while your customer service is responsible for building consumer loyalty.
Discuss the North Star metric at all of your regular meetings and brainstorming. You can pin it to the team’s Slack channel, be reminded of it in your internal newsletter, and even feature it in the meeting room!
Also remember to mention this during the onboarding process for new employees. The latter should immediately know the common purpose that unionizes the entire team.
Ultimately, each ally’s task should revolve around this North Star metric.
2. Reduce Dependencies by Breaking NASM
Breaking down your North Star metrics into multiple metrics encourages accountability and ownership at an individual level.
Each sub-metric will be linked to a team so that each collaborator can establish a clear link between their daily tasks and the NSM.
Let’s take the example of a logistics startup whose North Star metric is “number of daily trips”:
- Marketing managers can contribute to this objective through discounts introduced on social networks, on specific routes.
- To avoid registration losses, the web developer achieves this by reducing the loading time of applications.
- The Client Advisor promotes this success by responding to user requests, whether before or after subscription.
3. Align NSM with Key KPIs
Break down the North Star metric and key business KPIs. Identify the metrics that support them and how they overlap.
For example, let’s say that in order to increase your income (an important KPI, you know), you need to generate active users. So this metric will become the NASM for your company (a model admired by social networks).
Thus, by focusing on the North Star metric, your team helps improve your turnover, and therefore meet your business objectives.
4. Use the North Star Metric at Every Stage of the Sales Funnel
when you have arrived Determine Your North Star MetricYou should analyze synergistic variables which will allow you to get better results.
This data typically covers various stages of the customer life cycle. It consists of 3 main stages:
- registration of new users;
- increase engagement;
- User retention.
By understanding the impact of these interrelated variables on your current conversion rates, you gain valuable insight into which levers to leverage to grow your North Star metric.
You will manage to fuel the growth of your business in a sustained and sustainable manner.
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All you have to do is find your North Star metric!
Remember, this metric is strongly tied to the value you bring to your customers and indirectly to your revenue.
Once determined, you’ll be able to make better decisions and unite your teams around a common and inspiring goal!
To help you achieve this, consider hiring qualified freelancers!