What is a North Star Metric? Why is Important for Businesses

What is a North Star Metric? Why is Important for Businesses | Business Management | Emeritus

The one thing that truly differentiates your product from other products in the market is how much customer value you are providing. So, how do you measure customer value? One of the best ways to do that is to measure the North Star Metric (NSM). This post explains what the North Star Metric is, its benefits, and how to identify your own NSM.

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Introduction to the North Star Metric (NSM)

How To Become A Data Modeler

A North Star Metric is a fundamental Key Performance Indicator (KPI) metric that helps you identify whether your business’s product strategy is working or not and whether you are able to provide value to your customers. 

This KPI helps a business assess its growth and forecast business revenue. This metric also explains the relationship between customers’ problems and how well your product is able to address that problems. For example, let’s say you have built a fitness app that provides personalized workout plans for users. The problems customers face when it comes to their fitness journey is staying consistent and a lack of personalized health and fitness guidance. 

Your North Star Metric could be tracking the number of users who successfully complete their weekly workout goals. A high success rate indicates that the personalized workout plans are working for your customers, and you are able to resolve their pain points. It also indicates that the users are motivated.

In case the success rate is low, the product team can gauge that the product is not offering customer value. The team can assess the business metrics and improve the product by adding relevant features.

Therefore, the ultimate purpose of a North Star Metric is to align a company’s mission, vision, and values to achieve the business goal. It should be simple so that all the team members and stakeholders can understand and achieve the metric. 

Let’s see some of the best North Star Metric examples:

  • Netflix: Total number of hours steamed daily
  • AirBnb: Nights booked 
  • Zoom: Weekly hosted meetings
  • Spotify: Monthly paid subscribers 

These North Star Metrics help respective companies assess the effectiveness of their value proposition, customer satisfaction and engagement, and business growth.

ALSO READ: Why Your Business Continuity Planning Needs AI Magic

The Importance of NSM in Business

Many businesses focus solely on revenue and ignore the bigger picture, which ultimately impacts growth. This is where NSM helps—by enabling businesses to enhance customer value and engagement and achieve their long-term goals. Let’s understand this better with the help of an example.

An online learning platform aims to address the problem of difficulty in finding excellent-quality educational courses that ensure practical learning and help professionals upskill. The platform provides quality skill-based courses in association with leading educational universities and the courses have practical assignments, case studies, and skill-based assessments so that learners can upskill. 

The North Star Metric for this product is the number of learners completing a course per month. Tracking this NSM helps the platform evaluate how many learners complete the course on a monthly basis. If the number is low, the platform tries to find out the root cause for the low completion rate. They run a survey asking the challenges learners face in completing the course. Based on the feedback, the platform improves its course structure, teaching methods, assessment criteria, and more.

If the platform focuses on the number of new learners enrolled per month, that becomes only a short-term goal focusing on revenue. However, the growth of the company in the long run depends on how many learners complete the courses, upskill, and achieve their professional goals. Hence, establishing the right NSM is crucial for business growth and scalability. Here’s how North Star Metric helps businesses:

1. Helps Align Goals With Efforts

One of the major factors that hinders business growth is the lack of collective effort by teams. The North Star Metric is the top-priority metric for businesses to evaluate if they are on track with their goals. It helps all team members know the ultimate objective of the project, and different teams can streamline their effort accordingly to achieve the core metric. 

2. Boosts Transparency 

The North Star Metric also benefits businesses by enhancing transparency. Since the entire organization focuses on one metric, it becomes easier for the entire to track organizational growth. This can motivate employees as they see their efforts bear fruit.

3. Enhances Customer Engagement 

One of the most significant benefits of North Star Metric is boosting customer engagement as businesses are able to track customer insights. This ultimately helps increase customer retention rate and boost business revenue.

ALSO READ: How to Combine the Top-Down and Bottom-Up Approaches for Success  

Identifying a Company’s NSM

Now that you know what NSM is and how it benefits your business, how do you identify the accurate North Star Metric for your business? A North Star Metric performs three key functions: generating leads to increase revenue, reflecting and enhancing customer value, and monitoring the overall growth of a business. Moreover, you will notice that most NSM examples focus on one primary thing—the company vision. Also, remember that an NSM should be easily measurable, actionable, and understandable. Here is how you can identify it:

1. List Core Business Objectives 

Start by writing the core value proposition of your business: What problem do you aim to solve or what value are you providing to the customers? This helps you define your business mission and identify your NSM.

2. Define the Core Metric for Your Business 

The next step is defining the core metric for your business. Here you need to focus on how you define growth or what matters the most for you. For example, how much time customers are spending on your platform, how many transactions or purchases have been done during a specific period, or how many new records have been created per user in a week/month. These core business metrics help you define the North Star Metric.

3. Rely on Internal Factors 

One crucial thing to keep in mind while identifying the North Star Metric is that it should be specific and independent of external factors. For example, Uber’s NSM is the number of rides completed successfully. Ride booking depends on external factors such as economic and weather conditions. However, Uber’s NSM focuses on hassle-free, successful rides. This is in the company’s control because they can ensure that the driver does not cancel the booking, there are limited complaints from passengers, etc. 

Case Studies and Examples

The following are some case studies and examples to further understand the North Star Metric.

1. Salesforce 

Salesforce is a Customer Relationship Management (CRM) tool that helps businesses prepare sales pipelines and manage customers. Its NSM is “average records created per account”, which aligns with its mission of helping businesses gain customers.

2. Zoom

Zoom’s NSM is “weekly meetings hosted”. Since Zoom is a video communication platform, its North Star Metric aligns with its mission.

3. Amazon 

The NSM for Amazon is “monthly purchases per user”. It focuses on the amount of purchases made and reflects on monetization opportunities for the company.

ALSO READ: Setting Clear Business Objectives: Why it is Key to Business Success

What Is A Data Modeler

Large-scale organizations use one North Star Metrics to scale their business. However, the use of the NSM framework is likely to increase across small businesses in various industries as organizations grow and competition increases.

Moreover, most organizations have one NSM. However, as organizations expand and diversify their business models, many businesses can have more than one North Star Metric. For example, Spotify has three North Star Metrics:

  • Paid subscribers
  • Monthly active users
  • Consumption hours for podcasts 

ALSO READ: What is Business Management: 5 Ways it Can Boost Growth

Gain an Advantage With Emeritus

The product business is extremely competitive and businesses are fighting tooth and nail to stand out and retain customers. Hence, establishing business metrics, especially North Star Metric, helps businesses increase customer value and grow. You can set up a NSM by looking at other North Star Metric examples. However, you need excellent business management knowledge. Emeritus’ online business management courses can help you here. They offer skill-based learning and help you learn both practical and theoretical knowledge. Explore Emeritus’ online business management courses today to advance your career!

Write to us at content@emeritus.org

About the Author

Content Writer, Emeritus Blog
Sneha is a content marketing professional with over four years of experience in helping brands achieve their marketing goals. She crafts research-based, engaging content, making sure to showcase a bit of her creative side in every piece she writes. Sneha spends most of her time writing, reading, or drinking coffee. You will often find her practicing headstands or inversions to clear her mind.
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