North Star Metric is probably the most important metric in growth hacking methodology and it is essential for businesses to have a clear understanding of what their NSM is.
If you want to maximize your growth potential, you need the North Star to guide you. For long-term development, you as a company will need to develop a long-term strategy based on what is really important. This is exactly what North Star Metric is about: it is the single most important metric that best defines growth for your company. Imagine that you could only report one thing to other stakeholders in order to inform them about the results: what would it be?
The answer to this question is your North Star Metric.
"Growth hacks" usually include peaks of rapid growth, and growth means increasing your NSM, whatever it is. Of course, more importantly, you need to know how to retain customers for a long time, get ambassadors, and turn your marketing into a well-functioning machine. Your North Star Metric should be the center of your growth strategy. Everything you do, should somehow go back to what your NSM is and how to improve it.
Is your NSM a number of “transactions”? Perfect. Everything you do should be focused on getting more transactions. Repetition or recurrence of use, promotions, all other goals and specific actions should have this one goal in mind: it will bring us more transactions, on a short or long term.
The North Star indicator (NSM) is, therefore, an indicator that the company uses as its growth focus. This number best reflects the value your company brings to customers. The better defined the NSM, the clearer it is on what to do in order to better engage and retain customers, and of course, getting new ones, which is what every business wants.
If we analyse North Star Metrics of other companies, we will see that they are not always transaction based. Transactions are the results of doing things right, however, unless you are an e-commerce with a short sales cycle, it may go through other requirements that will end up in a transaction as a result of simply doing things right.
Let’s get Spotify. You may think their NSM should be the number of Premium users or the Ad revenue. However, none of these will happen if people don’t get “hooked” with Spotify platform. And what does hook customers of Spotify? The time they spend on the platform. Therefore, for Spotify, the North Star Metric is the time that users spend listening to music.
AirBnB has other approach, as they are a platform with a clear incentive for both sides. The main advantage for guests is the ability to get cheaper apartments or rooms in the cities (let’s get clear, even though AirBnB was created in times of shortage, nowadays, especially during and after Covid pandemic, hotels are rarely overbooked but more likely overpriced). The hosts, on the other side, have incentives of having guests since this is additional revenue or possibility to decrease their rental expenses. Both sides are winners here!
For AirBnB, they are doing things right when people are booking the nights. This is their NSM - number of nights booked. The more nights booked, the more revenue and the more trust and engagement to the platform.
Facebook, Tiktok and Instagram have other NSM: Daily Active Users. The more people get hooked to use the platform every single day, the more revenue they get on a long term and the more traction they will eventually get.
The idea behind North Star Metric is that if your company brings more value to your customers, then your company's growth must remain positive. The assumption is that if your customers get a lot of value, they will stay longer, buy more products, and recommend more friends to your company. Therefore, if your North Star Metric is also growing, your business will grow in all aspects.
As the main indicator of success, the North Star indicator provides much more than just a clear metric that should get everyone on the same page: it provides clarity of all key objectives, ensuring that everyone on your product team agrees that you can forgo other features and what features need to be optimized. You get fewer disagreements and more concentrated energy. At the same time, this metric enables you to track the progress of products and goals in a way that the rest of the company can understand. Once you have NSM clear, it is also clearer what to do next, whether it is additional customer success support, which can speed up your project, new features or others. Overall, the North Star Metric can help your team work towards a common goal and drive growth by understanding the relationship between variables and conversion rates.