What is a North Star Metric?
Polaris, the North Star, is a navigation aid for sailors who would otherwise become lost at sea.
A North Star Metric (NSM) is an important measure that looks at a company's success in terms of product engagement for its most loyal customers. It's a method of getting everyone at a company to focus on a single goal. It helps give a company direction. It's a navigation aid.
Startup investor and growth hacker Sean Ellis coined the term with the intent to reduce administration, simplify meetings, and align teams around a singular goal of rapid, sustainable growth — a method for summarizing overall company strategy into terms everyone can remember, understand, and apply.
The thought behind North Star Metrics is that the more your company values its most loyal customers, the more growth potential your company has.
The NSM should serve three essential purposes in your organization:
- Provide the company with the clarity and alignment of what the product team needs to optimize for.
- Convey the impact and progress of the company's product or service throughout the organization, resulting in more support and growth for the implemented strategic initiatives.
- It should hold the product accountable for customer satisfaction.
Common Pitfalls of a North Star Metric
When you focus on a single metric to drive your growth, there's a risk that you might not pick the metric aligned with your goals.
The most common pitfalls of a north star metric are as follows:
Concentrating on "Vanity Metrics"
Vanity metrics are numbers like page views, new signups, or total registered users that may sound impressive but indicate very little real value delivered to customers.
Beware of numbers that look good on paper but are not action-oriented. Your metrics should be actionable, accessible and auditable.
For startups, especially early-stage startups, revenue doesn’t tell you if your customer loves your product, and since you're a startup, it's doubtful that you already know how your product or service impacts your revenue. You don't have the data on this yet.
Although using revenue growth as your NSM is tempting, it is not a good representation of product-market fit.
Factors to Consider When Choosing Your North Star Metrics
What kind of gamer are you? Choosing the right NSM for your company means figuring out what kind of "game" you want to play. This game is your core customer engagement model.
The Attention Game
How much of your customers' time can you capture with your product
The Transaction Game
How many transactions do users make on your platform?
The Productivity Game
How many high-value tasks can your customer perform on your product?
The Virality Game
How many social media shares do you receive from your customers? Are they sharing this with their circle? Is this a major factor in the growth of your product?
Although each of these strategies is an important factor for your business, the point of a North Star Metric is to give your startup a clear strategy with a singular focus. Any one of them can be the right answer, but which one is right for you?
What is a Good North Star Metric?
A good NSM should have a statement about your product and a metric that serves as the key measure of your current product strategy.
Here are two points to guide you:
1. A Good North Star Metric Aligns with Value
Your NSM should be developed through a deep understanding of what action gives "realized value" to your customers. It needs to get as close to the impact of your product or service as possible.
For example, numbers such as daily active users or registered users are not good key performance indicators (KPIs) because they don't automatically translate to the value your product or service brings to your customers. Numbers like this are too generic to function as NSMs.
You can apply them to anything. As a result, you miss a significant opportunity to give clarity to your team. They're not specific to your company or your goals. Quantity metrics like this don't answer the big questions, like:
- Why do our users like our product or service?
- How can our product or service be better?
- What do our customers want to see next?
North Star Metrics Should Impact Retention
In addition to working on their customer acquisition strategy, B2B SaaS startups should raise their customer-retention game.
Retention metrics — retaining clients and limiting churn that's vital to growth — are a positive outcome for assessing whether you've chosen the correct NSM strategy, far more important than basic quantity metrics like active users, which aren't indexed for quality or impact.
Product usage metrics, for example, are better than basic quantity metrics, like active users, because they help you understand how users engage with your product, where they get stuck, their pain points, and what features make them stick around. Focusing on this as an NSM answers quality rather than quantity questions: not "how many customers use our product?" but "how do our customers use our product?"
That's not generic. It's specific. Answering that question has everything to do not only with what your product or service is but how customers use it.
Aligning your NSM with the value your customers get from your product or service helps you determine which product features different user segments engage with the most and how effective your in-product engagement strategies are. It also helps you make data-informed decisions to improve your product and its overall performance concerning user behavior.
2. A Good North Star Metric Predicts Success
An NSM should be a leading indicator of your future success. Unfortunately, indicators such as monthly revenue or average revenue per user (ARPU) don't provide you with an early signal of product impact. In fact, such things can be categorized as lagging indicators since they don't predict future revenue and are focused on what happened in the past.
Use a North Star Metric that can drive future impact for the company by further upstreaming your revenue and market capitalization.
Ready to Chase Your North Star?
North Star Metrics are forward-looking and should be the guiding light that leads you to your long-term company growth.
There is no “one-size-fits-all” North Star Metric. Because you offer customers unique value with your product, your North Star will be unique — choose a metric that represents your customer usage, engagement, or value.