The North Star metric: a comprehensive overview

Companies collect and analyze a huge amount of data, especially performance indicators, that can help them better understand their clients. There’s a strong sense of not wanting to miss out on critical insights that could help the business stay competitive or navigate major shifts in the market.

The North Star metric (NSM) is a concept that encourages organizations to avoid getting lost in this sea of information. Instead, they should identify that single, defining measurement that reflects the value they bring to customers—the one that truly makes a difference for long-term success.

In theory, having this kind of clarity makes it possible to align the organization’s efforts and resources on the path toward a meaningful goal.

The term “North Star metric” was coined by startup investor Sean Ellis. He was inspired by Polaris, the guiding light that sailors have used in navigation for centuries.

A good NSM should do the following:

• Lead to revenue: it should tie in closely with the company’s financial performance.

• Reflect customer value: it should measure the value customers get from your product or service.

• Measure progress: the NSM should clearly indicate your company’s growth and improvement over time, making it possible to track how things are going.

Unlike data points that might only reflect short-term achievements or isolated failures, the guiding light you choose should capture the essence of what makes your company function at its best. For example, a social media platform might use “number of daily active users” as an indicator that directly correlates with user engagement, advertising revenue, and long-term growth.

The North Star approach has become a persuasive alternative to the inefficiencies that can happen when businesses are juggling several metrics. When each department is defining its goals differently, they can end up working against each other and wasting resources.

However, don’t take this concept too literally. Most companies have a complicated set of priorities that will require multiple North Star metrics and sub-metrics. Teams can use their NSM to simplify their overall company strategy into something that everyone can remember, understand, and apply.

The ultimate reason for implementing this focused approach is to become more effective overall and to make it easier to achieve the organization’s long-term goals.

Some advantages of identifying and pursuing your most critical metrics are:

• Alignment: if your company’s NSM is “number of daily active users,” every department, from marketing to product development, can synchronize their efforts to increase user engagement and retention.

• Transparency: having a clear and measurable North Star metric provides transparency across the organization. It allows everyone, from top executives to entry-level employees, to understand how the company is performing, where it’s heading, and how their individual contributions make an impact.

• Driving progress and growth: the NSM can help product development teams channel their efforts toward the most meaningful projects rather than getting sidetracked. For example, if the biggest priority for a social media app is user engagement, the natural inclination is not only to create specific features to spark more interaction but to make the entire platform more engaging.

• Customer focus: a well-chosen North Star metric is always tied to the value you are delivering to your customers in terms of happiness, satisfaction, and loyalty. It should be a constant reminder that the company’s long-term success depends on being able to continually improve its products and services based on customer feedback and needs.

Choosing a North Star metric is often a “gut check” moment. These are indicators that relate to the most fundamental aspects of the business.

The goal is to direct your resources in a way that guides daily operations and leads to long-term success. So, how can you find a metric that’s meaningful enough to serve that purpose? Start by reflecting on your business model, what makes the biggest difference to your growth, and how your users typically behave.

Understand your business model

Your business model summarizes how your company earns a profit. Deeply understanding the components that calculate your profit, like price points, expenses, and your overall portfolio, will help you make good decisions that maximize profits. Consider the following factors:

• Which products or services contribute most significantly to our revenue?

• Who are our primary customers?

• What problem does our product solve?

Identifying how you sustain your operations, including what makes your product or service unique, will help you understand the key mechanisms that keep your business afloat and growing.

For an ecommerce company, this might be from product sales, while for a SaaS company, it could be from subscription fees. By linking your North Star metric with the core of your business model, you make sure that it reflects critical aspects of your company’s financial performance.

Identify key factors for sustainable growth

Analyze what really matters for long-term success and choose a North Star metric that can push you in the right direction. Loyal customers are usually the hallmark of sustainable growth, as reflected by metrics like net promoter score (NPS) and customer lifetime value (CLV).

Your company’s ability to innovate and develop new products is another important lever you can pull to stay competitive. You can optimize these through metrics like the percentage of revenue generated from new products.

Analyze user behavior and journey

Understanding the entire customer journey, from the moment they discover your product to the point where they become loyal users, can reveal the patterns and touchpoints that should influence your approach.

For example, a fitness app might discover that users who log their workouts consistently for the first two weeks are more likely to become long-term subscribers. Therefore, a relevant North Star metric could be “the number of users who log workouts consistently for the first two weeks.”

Let’s look at how three well-known organizations leveraged their North Star metrics to become extremely successful and transform their industries.

Facebook, Spotify, and Gojek were all notably shaped by their pursuit of a data-centric goal that reflected unique aspects of their businesses. This shows just how diverse and specialized these metrics can be.

Facebook’s North Star metric

Facebook is known for its relentless focus on its number of daily active users (DAU), which is a measurement of how many people find value in using the platform each day.

This metric is rooted in Facebook’s business model, which relies on offering advertisers a vast audience that can deliver high click-through rates. This metric encourages the development of features that keep users coming back daily, including news feed updates, interactive content like live videos, and a steady stream of personalized content.

Spotify’s North Star metric

“Time spent listening” is the metric that best aligns with Spotify’s business model, which depends on advertising and fees from paying members. More time spent streaming music, podcasts, and other audio translates to higher ad impressions for free-tier users as well as higher retention rates for premium subscribers who feel their membership is valuable.

This metric drives Spotify’s decisions on everything from using extensive analytics to create personalized playlists to negotiating deals with artists and record labels to get exclusive content. The company’s ultimate goal is to achieve high levels of satisfaction and longer listening sessions.

Gojek’s North Star metric

Gojek is a leading Indonesian “super app” known for a diverse range of on-demand services, including ride-hailing, food delivery, and digital payments. Gojek aspires to become a seamless and indispensable part of its users’ daily lives. The company’s North Star metric—total completed orders—reflects this goal.

For a platform that wants to be its users’ anything and everything, this comprehensive measurement captures the overall activity across all services, large and small. It also directly reflects high operational efficiency and happy customers, with users repeatedly choosing Gojek’s services rather than those of competitors.

A North Star metric promises clarity and alignment. However, it’s a concept that depends heavily on choosing the right core priorities.

There are also misconceptions about the NSM strategy. These can cause organizations to focus on the wrong metrics, misinterpret their data, or simply miss out on opportunities to pursue the most meaningful goals.

Some of these common mistakes are:

Overemphasizing vanity metrics

A vanity metric is one that captures seemingly good outcomes but doesn’t actually tie to successful business outcomes. For example, an app can boast millions of downloads even if most of those users never engage with the product or service again.

Other so-called vanity metrics include the number of website visits, total registered users, or even the number of followers on social media, which can all create a false sense of progress. Marketing can easily manipulate these superficial achievements. They don’t truly reflect the business’s performance.

Neglecting the importance of customer success

Once customers become aware of your product and decide to try it, they need to experience a sense of value fairly quickly.

A subscription service might be able to increase revenue through aggressive upselling but then face frustrated customers who want to cancel if they don’t perceive the subscription to be worthwhile. Perhaps it doesn’t contain enough content, for example.

Another misguided metric could be “the number of ads served,” which might cause an uptick in revenue but also lead to a poor user experience.

These kinds of major blunders happen when businesses overlook the importance of customer-centric performance indicators in favor of purely financial metrics.

Relying on short-term growth instead of long-term success

Sticking with the theme of sustainability, companies can fall for the allure of short-term metrics, often through promotions and new product launches.

These tactics are also known as “growth hacking.” Growth hacking can lead to immediate spikes in activity, but it doesn’t necessarily assure you that users care about your product or will stick around.

Companies that emphasize longer-term metrics are motivated to invest in product improvements, customer retention, and other foundational aspects of the business.

Build a supportive organizational culture that integrates your core values at every level. This should be one of your main priorities when implementing a North Star metric.

The next step is to bring everyone on board and make sure they understand how to contribute.

Here are some ways to harness your North Star metric’s full potential:

Create a culture of data-driven decision-making

Companies that want to foster a more data-centric approach typically invest in improving data literacy across the entire organization. They work to make paying attention to the numbers, interpreting them, and applying important insights intuitive for employees.

Leaders can help set this tone by weaving relevant metrics into the language they use in their decision-making processes or when framing the company’s broader mission.

Creating this culture is also all about regularly providing important data updates and celebrating successes in a very visible way. This encourages everyone to care more about their contributions.

Align your company’s growth strategies with the North Star metric

Break down your biggest priorities into specific objectives for each department, whether they are actual measurable key performance indicators (KPIs) or aspects of an overall strategy that link explicitly back to the NSM.

The marketing department in a company that cares about its customer retention rate metric might work to create loyalty programs. Meanwhile, the customer service team is incentivized to resolve issues more quickly, directly contributing to higher satisfaction with the product.

Constantly evaluate and adjust the North Star metric

The North Star metric is designed to be a stable, guiding measurement of your long-term strategic priorities, but it should also be flexible enough to evolve as necessary. This might be because your company itself is maturing or because the ground underneath your industry is shifting, perhaps due to new regulations, emerging technologies, or changing customer or employee preferences.

Rigid adherence to an NSM that’s no longer meaningful can lead to a disconnect between the performance of this metric and the business’s overall performance.