North Star Metric: a growth hacker’s way to find your true North
If you read our last blog about the Pirate Funnel (wait, you didn’t?) you should know that the very first thing that has to be clear in your growth hacker mind is what your North Star will be. Buckle up, cause you’re about to find out how to define it, why it is a life or death matter for your organisation, all the best practices, and why the NSM is different from an OMTM.
*and keep reading to find out what these acronyms mean😉
1. What is the NSM?
If you ended up here, chances are you already have a (vague) idea of what a North Star Metric is. We think the name really says it all: it’s the one, ultimate metric that clearly defines the overall performance of a company. This number is the best reflection of the value delivered by your company. You could see it as the most important key performance indicator (KPI); the primary difference is that KPI’s are used to measure how effective you are at achieving your business objectives, while metrics describe the status of business processes.
We cannot stress enough the importance of this: defining your North Star Metric. Too many promising businesses lost their way due to a badly -or even non-defined- NSM. It is The metric. The one everyone should be looking at. What does it look like? It’s the time spent listening for Spotify or the number of nights booked for Airbnb, and if it sounds a bit mainstream, well, it gives a good idea of what you should be looking for in this metric.
It’s the unit of measure for the value you are delivering, and consequently, for your overall success. And in case you were wondering, no, profit cannot be a north star.
Profit is what you get from your customers, a north star is what you give them.
* Feel free to use the following best practices as inspiration:
- WhatsApp: ‘Number of sent messages’
- Picnic (grocery delivery): ‘Monthly groceries delivered on time’
- Hubspot: ‘Active teams per week’
- Amazon: ‘Amount of purchases per month’
- Slack: ‘Time spent listening’
The North Metric Star is relevant for every step in the Pirate Funnel, from Awareness to Referral. The key is to show as clearly as possible the amount of value your business is bringing to your customer. It’s a cycle: when your NSM grows, so will the value perceived by your customers, and an increase in customer value is directly linked to the AAARRR Funnel: happy customers will probably use your services again and again (Retention) and ultimately, tell their friends and family to also start using your products and services (Referral).
2. How do I define my NSM?
A good North Star Metric meets certain criteria. It has to:
- Focus on what brings the most value to your customer: What value do your customers want to get out of your product? Find the moment in the process where customers achieve the highest ‘level of satisfaction’. Let’s take Quora as an example. A possible NSM for them is ‘Number of questions asked’, However this is not the point where users achieve the most value. Instead, Quora’s NSM is ‘Number of questions answered.’ As this metric focuses more on the value Quora brings to the customer.
- Express value to the customer, not the company: Many companies focus on metrics such as numbers of orders or revenue. Doing this, you are not focusing on delivering value to your customers, as a result, you won’t be able to spot ‘leaks’ in your company properly. For instance, when an e-commerce store uses ‘Number of orders per month’ as their North Star Metric, there is no focus on the way the orders are delivered to the customer. A better NSM would be ‘Number of orders without any complaints’. By adding this delivered value to the NSM, you shift your focus from quantity to quality which in most business cases, is where your focus should be.
- Your North Star Metric is measurable and time-bound: Degree of customer satisfaction is not a measurable metric. What is, however, is the amount a certain action is undertaken. Time is also an important requirement since you will have to compare periods in time to see whether you grew or not. Don’t make these periods too long though or you won’t be able to respond to change quickly enough. Most companies compare their NSM with the previous period every month.
- Your North Star Metric should impact every step of the Pirate Funnel: When one step in your funnel grows, your NSM should also be growing. This is why you have to choose a metric that applies to every step.
When you apply these steps into defining your North Star Metric, you and your team are correctly aligned to focus on long-term business success.
3. The difference between NSM and OMTM
Now, are you getting the hang of it? Don’t stop reading then! We have dropped the term OMTM a few times now. OMTM stands for One Metric That Matters. “Is the NSM a same thing as an OMTM?” if you found yourself googling this, no worries, you couldn’t be less alone. Sprints and Sneakers to the rescue.
A north star metric is shared by the whole organisation and is the common thread that drives every effort, is the point all the energies are directed to.
The One Metric That Matters, on the other hand, are different for every phase of the funnel and they work in function of the NSM. They are what each team has to focus on in order to realise short-term growth over a limited period of time (usually a few months). To keep it short, hierarchically speaking, the OMTMs work for the NSM. Concluding, departments seek the One Metric That Matters for processes they think are able to improve the North Star Metric the most in a given period.