Operating a sustainable business involves managing a complex, ever-changing array of moving parts and interdependencies. Ensuring they all work together in unison can be frustrating – but having a North Star metric can help companies measure success.
Organizations typically have a defined mission or goal to meet a particular need or deliver a differentiated value proposition to customers, ideally, better than anyone else. Having a North Star metric allows for tangible assessment of that mission’s success or failure, revealing what’s working and what’s not.
In this article, learn what goes into creating a North Star metric, including:
What a North Star metric is
Why you need a North Star metric
How technologies can help you uncover your North Star metric
How you can use your North Star metric to drive growth
What Is a North Star Metric?
Generally speaking, a North Star is a guiding light, a point of reference pointing toward success.
A North Star metric best caters to companies looking for long-term, sustainable growth. It focuses on products or services and the value they deliver to customers. Typically, the value customers receive is measured by steps in the consumer lifecycle. In the technology and Software as a Service space, indications of value often relate to the engagement of existing users and new users acquisition.
The value from customers creates a strategic direction for a company – and this helps define a North Star metric. The metric should be the epitome of a company’s objective, the core of every growth tactic.
Why Do You Need a North Star Metric?
Data has never been more critical for businesses in every industry. It helps focus on what matters most. When a company knows what success looks like, it can make strategic decisions, implement new systems, and deploy changes that push metrics in the right direction.
Without focus, business owners, operators and employees may get lost in the many mundane choices they make day in, day out. Spending too much time on small, short-term decisions can take away from longer-term growth-driving activities.
If no one is putting time and energy into actively expanding your operation, it will remain stagnant.
How to Find a North Star Metric
To identify a North Star metric – the most crucial metric for any growth model – take a good, hard look at how a product delivers value to customers. Do this by examining user engagement and activity.
For example, Airbnb might set the number of nights booked per user as their North Star metric. At Quora, it might be the number of questions a user answers. And, finally, at What’s App, the number of messages a user sends.
A North Star metric needs to provide information about the following three factors:
Revenue – The metric, paired with other KPIs, must enable accurate revenue forecasts.
Engagement – How are existing customers interacting with a product? How many new customers are choosing a business’s product?
Direction – The North Star metric contributes to things like feature updates, marketing strategies and growth tactics.
The metric should hold the value that’s inherent to the optimization of your product. That way, it can point a company in the right direction for sustainable growth in a way that makes sense to teams across the board.
Do keep in mind that a North Star metric is not set-and-forget. As the business changes and evolves, the North Star must be re-evaluated.
Using Technology to Identify a North Star Metric
Guessing isn’t good enough. A North Star metric gets established through the accurate analysis of relevant data.
Two technologies can help find a company’s North Star:
Big data management and analysis software – Look for a streamlined platform that enables you to focus on critical insights.
Application performance monitoring platforms – These allow you to identify when, where, and why issues arise, and how they impact user engagement.
Technology provides a data-backed foundation for your North Star, but it’s still worth asking your people what they believe to be the most crucial metric. This stat indicates the success of the business most accurately.
How a North Star Metric Drives Growth
After identifying a North Star metric, it’s time to create a framework around it that helps teams inside the company drive growth.
First, examine the variables that define the metric. Usually, these will be the steps along the customer journey – onboarding, engagement, retention, etc. Mapping these out provides a big-picture model of customer touchpoints that can help companies better understand what influences their metric – and how to grow it.
Then, analyze user experience data to gain an even deeper insight. Segment customers for a more granular look at the various buyer journeys impacting the North Star. The more detailed data, the better.
From there, align priorities, narrow focus and develop a structural approach to growth.
It’s crucial to acknowledge the power of defining a business’s North Star, but it’s equally as important to recognize that it’s not a solution in itself. Think of the metric as a lens through which to view growth strategies. Getting more in-depth insights into consumer behavior can help unify a team’s approach to delivering more value.
The North Star metric offers a results-focused tool that can be utilized now – and for years to come.
Michael Brenner is a keynote speaker, author and CEO of Marketing Insider Group. Michael has written hundreds of articles on sites such as Forbes, Entrepreneur Magazine, and The Guardian and he speaks at dozens of leadership conferences each year covering topics such as marketing, leadership, technology and business strategy. Follow him @BrennerMichael.
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