What is a North Star metric in marketing?

Okay, let’s be real for a second. Data analysis sometimes feels like sifting through a haystack in search of one teeny, tiny needle. Yes, businesses operate on data analysis. Yes, you need to back up everything in marketing with cold, hard data.

But in a world as hyper-connected, data-driven, and information-flooded as ours, you need to filter out the noise to focus on what matters most.

Revenue marketing often finds itself balancing creative campaigns and messaging with rigorous data analysis and optimization. With endless metrics and data points to measure, it's easy to get overwhelmed.

The key is identifying the one North Star metric that reflects your core business goal. This single North Star metric will guide your decision-making through the maze of data. Rather than tracking vanity metrics, it focuses your efforts on the marketing strategies that directly impact revenue growth.

In this article, we’re going to delve into:

What is a North Star metric?

Just as sailors and travelers have relied on the North Star for navigation for millennia, businesses can utilize the power of a “North Star metric” (NSM) to chart their growth.

Your NSM, also sometimes known as a core metric, isn’t just a “nice-to-have.” It’s a vital indicator of a business's growth. How so? Well, a North Star metric provides tangible insights into whether the company is meeting the expectations of its customers and stakeholders.

Put even simpler, a North Star metric is a single, high-level metric that represents the overall success of your company or product. Many business leaders view North Star metrics as a cross-functional guiding light that aligns all teams and stakeholders toward a common goal, acting as a thread that binds teams together.

But wait, surely businesses rely on metrics like annual recurring revenue (ARR), Net Promoter Score (NPS), and monthly recurring revenue (MRR) to gauge their success? They sure do! But this is where North Star metrics and marketing functions unite.

Unlike traditional financial metrics – more on that in due course – which get bogged down in numbers and can lose sight of the customer at the heart of the business, a North Star metric is usually customer-centric, focusing on the value your product or service delivers.

The concept of a North Star metric isn’t solely applicable to marketing. A NSM is used across the entire company.

Sean Ellis, co-author of Hacking Growth (2017), defines a NSM as:

“The single metric that best captures the core value that your product delivers to customers.” This metric should be the highest target for everyone in the organization, helping to simplify communication and execution across departments.

What is a financial metric?

Financial metrics, on the other hand, are quantitative measures that track a company's financial performance and health.

These metrics typically focus on revenue, profitability, and growth, providing insight into a business's financial success and sustainability.

Common financial metrics include:

Revenue: The total income generated by a company through the sale of products or services.
Gross profit: The difference between a company's revenue and the cost of goods or services sold.
Net profit: The amount of profit that remains after all expenses have been deducted from revenue.
Cash flow: The net amount of cash and cash equivalents being transferred into and out of a business.
Customer acquisition cost (CAC): The total cost associated with acquiring a new customer.
Customer lifetime value (CLV): The total revenue a company expects to generate from a single customer over the entire relationship.

Financial metrics are essential for understanding the financial health of a business, but they don't always tell the whole story when it comes to marketing.

How to differentiate between North Star and financial metrics

While financial metrics are important for tracking a company's overall financial performance, they don't necessarily provide a complete picture.

A company can have strong financial metrics but still struggle with customer acquisition, low retention rates, or poor customer lifetime value.

North Star metrics, on the other hand, are specifically designed to measure the marketing value that drives growth. These metrics are often leading indicators, providing insights that can shape your marketing strategy.

Here are a few key differences between North Star metrics and financial metrics:

Customer-focused vs. company-focused: North Star metrics are customer-focused, centering on marketing metrics that attract and retain high-value customers. Financial metrics look broadly at the company's financial health.
Leading vs. lagging Indicators: North Star metrics are leading indicators that predict revenue growth potential. Financials are lagging indicators reflecting past performance and results.
Alignment vs. siloed: North Star metrics align teams across the organization toward common marketing goals for growth. Financial metrics often create siloed thinking, with each department focused on its own specific metrics.
Long-term vs. short-term: North Stars take a long-term view of marketing impact on customer value. Financials often emphasize short-term financial performance and results.

To effectively differentiate between the two, ask yourself:

Does this metric measure marketing's impact on revenue growth?
Is this metric a leading indicator of future marketing and revenue potential?
Does this metric align teams across marketing and sales around common goals?
Is this metric focused on long-term customer value and retention?

If the answer to most of these questions is "yes," then you're likely dealing with a North Star metric. If the answer is "no," then it's likely a financial metric.

It's important to note that while North Star metrics and financial metrics serve different purposes, they aren’t mutually exclusive.

For example, a high customer lifetime value is a positive financial metric indicating revenue potential. However, if your month-over-month customer retention rate (a potential North Star) is decreasing, it could signal lower lifetime value ahead.

By understanding how North Star and financial metrics work together, you can develop a strategy that measures and optimizes marketing's impact on long-term revenue growth.

Examples of North Star metrics from leading companies

It can be insightful to examine the North Star metrics used by successful companies. How are industry leaders benchmarking their progress and defining success?

Let’s take a look at a few potential North Star metrics from top brands

Netflix

As a streaming entertainment service, Netflix focuses on optimizing viewing engagement. Their North Star metric could be the average hours viewed per member per month.

This spotlights whether they're keeping subscribers actively watching.

Shopify

Shopify powers eCommerce for over 1 million businesses. Their North Star might be revenue per merchant, emphasizing merchant success.

Growing merchant revenues ultimately lifts Shopify's own revenue.

Peloton

For connected fitness brand Peloton, it's all about building exercise habits. They probably distill this into workouts per month per member.

More classes streamed means greater engagement and retention.

Slack

Slack's collaboration platform aims to save enterprise teams time. So their NSM could be "weekly time saved per daily active user." This quantifies their core value proposition.

Amazon

With its nuanced, ecosystem approach, Amazon most likely focuses on dollar value per active customer. They aim to drive more spending from each user across Amazon Prime, Marketplace, AWS, and devices.

By studying these examples from leading companies, you can better understand how NSMs are selected and used to drive growth by staying centered on delivering core customer value.

4 steps to choosing your North Star metric

To choose an effective North Star metric you must consider these four steps:

1) Analyze the essential factors

First off, you’ll want to analyze and list the various factors that contribute to company success. Now’s the chance to think broadly.

What we’d suggest is to identify the key pillars that need to exist for your business to stay afloat. In some cases, these might include streamlining campaigns, generating sales, and measuring progress.

2) Choose metrics tied to those factors

Now, you want to turn these factors into measurable metrics. Ask how you can quantify each essential factor. Cut out the “nice-to-have” metrics and keep only the most critical ones.

3) Determine the single metric that encapsulates the crucial ones

Finally, determine the single metric that encapsulates the most crucial measurements. Your potential North Star will be at the top, with each sub-metric feeding into it.

4) Avoid common North Star metric mistakes

Some common mistakes to avoid when choosing a North Star metric include:

Defaulting to revenue. Revenue fluctuates, drives poor decisions, and doesn't inspire teams.
Sticking too rigidly to a metric. Be open to changing your NSM if it no longer fits.
Focusing too narrowly. Use other metrics too, ensuring they align with the NSM.

Why do North Star metrics matter to revenue marketing?

Alignment

North Star metrics help align marketing and sales teams around shared objectives and priorities.

Rather than optimizing for vanity metrics like clicks or impressions, North Star metrics focus marketing on business outcomes that matter, like new customers acquired or lifetime value.

Focus

With a clear North Star metric defined, marketers can prioritize the marketing strategies and campaigns that directly impact that goal rather than spreading efforts thinly across multiple ambiguous objectives.

It brings focus to the initiatives that’ll move the revenue needle.

Accountability

North Star metrics make marketing more accountable and quantifiable.

When the marketing team has a single, well-defined metric they’re working toward, it’s easier to track their impact and contribution to revenue growth.

Optimization

North Star metrics enable better optimization of marketing tactics and spend. Marketers can double down on what's working and course correct tactics that aren't driving the North Star metric in the right direction.

It becomes the guiding light for marketing experimentation.

Credibility

Demonstrated impact on the North Star metric builds credibility for the marketing team with key stakeholders. It shows their programs are aligned to business goals and contributing to growth.

With so much data at your fingertips, it's tempting to measure and report on too many metrics, some of which may prove to be mere distractions.

Applying your North Star metric to revenue marketing

For revenue marketing, your North Star reflects business value gained. This could be new customers acquired, lifetime value, or growth in average order value. The right metric depends on your business goals.

You shouldn't settle on your North Star metric as a revenue marketer. You're at the helm of driving your company's revenue growth engine.

North Star metrics should be revenue-focused, so ask yourself:

Does it apply to your target customer profiles?
Can we measure it frequently?
Do external factors minimally impact it?
Is it tied to business revenue and growth?
Can marketing efforts and campaigns directly influence it?

The key question is whether your NSM can be directly influenced by the marketing campaigns, strategies, and initiatives you implement.

If the revenue marketing team can’t move the metric through their strategies and executions, then it might not be the right North Star to guide your efforts.

Your North Star metric should reflect the core business value you’re trying to drive through marketing. It keeps you focused on the campaigns that’ll have the biggest revenue impact and helps you optimize your strategies to continually improve performance against your most important metric.

Interrogate your North Star metric

Before integrating a new North Star metric into your business, thoughtfully evaluate its suitability through these key questions:

When can we expect to see this metric reflect our marketing impact?

The ideal NSM captures the moment your marketing delivers on its core promise of driving revenue, capturing leads, or driving positive experiences for customers.

Is this metric relevant to our target customer profiles? Robust NSMs apply broadly across your intended audience. Avoid narrowly optimized vanity metrics.

How feasibly can we monitor this metric? While intangible, marketing success should manifest in observable, measurable signals. Creatively identify measurable indicators of impact.
What time frame offers optimal insight? Contextualizing your NSM requires consistent tracking over set intervals. Balance big-picture visibility with responsiveness.
How independent is this metric from external variables? NSMs should isolate marketing’s impact. Be wary of volatile outside factors distorting accuracy.
If our NSM grows, will revenue grow? True NSMs have a direct bearing on the health of the business. Guard against vanity metrics that don't impact the bottom line.
Can we rally the organization around this metric? Engaging NSMs empower employees across functions to move the needle. Avoid narrow metrics that lack crossover appeal.
Will this metric change in sync with our progress? Useful NSMs respond quickly to reflect your real momentum. Be skeptical of stagnant metrics that lag behind reality.

Evaluating your NSM along these lines helps ensure it captures your product value and business growth potential. Vet any proposals rigorously before adoption.

Conclusion

Navigating the sea of metrics and data can be daunting – let’s not downplay that! However, by understanding the difference between North Star metrics and financial metrics, and identifying the right North Star metric for your organization, you can cut through the noise and focus on the metrics that truly matter.

North Star metrics provide a customer-focused view of marketing success, aligning teams toward common objectives and helping you prioritize initiatives that increase customer acquisition, retention, and lifetime value. Financial metrics, while important for understanding the financial health of your business, should complement your NSM rather than overshadow it.

By striking the right balance between these two types of metrics and leveraging analytics to measure marketing data, you can develop a strategy that optimizes the customer journey and drives sustainable revenue growth

Remember, your customers are your most valuable assets, and their lifetime value should be the driving force behind marketing. By keeping your NSM at the center of your strategy, you can ensure marketing focuses on attracting and retaining high-value customers and delivering the valuable experiences that they expect and deserve.

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